Car Insurance: Deductibles & More

Three years ago when I got my BA degree it was time for me to get my car insurance under my own name. For the sake of comfort and simplicity I stayed with the same insurer that my parents have used as long as I've been alive, State Farm. I also kept the exact same coverage my parents had selected.

Now, after gaining a great deal more financial literacy I think it is time to revisit my car insurance. A little research gave me all of the information I need. First we have a 1999 Chevy Lumina (Kelly Blue Book Private Party value $2,880) and a 2007 Dodge Caliber (Kelly Blue Book Private Party value $10,995). Second, I just turned 25 and should now qualify for lower rates. Third, neither my wife or I have ever had an accident that was turned in to our insurance company.

Our current coverage has all of the basics such as liability, uninsured motorist, and medical payment coverage. We also carry comprehensive on the Caliber (required because of the car loan). Under no circumstances would I recommend skipping any of these coverages, and generally I would buy the highest payout offered.

We also have a few extras like towing and trip interruption coverage. Unfortunately I've goofed up and paid once each for a locksmith and a tow because I didn't realize I had these coverages. We also have roadside assistance for both cars, the Lumina is $3 a month through State Farm, and the Caliber is covered under the manufacturer's warranty. I'm undecided about paying for these coverages. Why should I insure against a risk that will cost somewhere in the range of $50-250. I should be able to pay that out of pocket (aka emergency fund) if it is needed.

The last thing that I learned is that I have very low deductibles. In fact, for the comprehensive I have ZERO deductible and for collision I have the lowest available, $250. When I was first starting out in the "real world" it made more sense to have these low deductibles. I didn't have any savings and even a small problem would hurt my cash situation badly. Now, I basically self insure by having $1,000+ in an online savings account. The math tells me that I should raise these deductibles to at least $500 but maybe even $1,000.

By raising my deductibles and dropping "extra" coverage (which I accidentally paid out of pocket twice already), I would save money on my regular payments. I also learned that by being billed monthly I pay a few dollars extra as a processing fee. In total I can reduce my monthly car insurance bill from $137.00 down to $738.00 twice annually. A $14 a month savings isn't much, but over time (and with a little luck on the road) it could add up.

I haven't decided for sure to make the changes. Reducing the monthly bill about 10% but in exchange doubling my risk exposure still isn't clear cut to me. So, now I am looking for comments and advice about what to do. When I make a decisions Aspire 2 Wealth subscribers will be the first to know. Also, let this post be a reminder for everyone else to take a few minutes and double check your insurance coverage.