The goal of insurance is to take some of the risk you are exposed to every day off your shoulders. You pay the insurance company and, in turn, they accept the risk that you might have an accident and agree to pay a certain amount.
Auto insurance often offers a sort of shared risk. Deductibles and limits divide the risk to make certain some of the risk is yours, and some of the risk belongs to your insurance carrier.
Deductibles are the amount of damages you’re responsible for before your carrier pays out. If the cost of your damage does not exceed your deductible, however, you’re responsible for the full amount.
Limits are the maximum amount that your insurance company will pay toward a claim. Any additional liability above your policy limits is your responsibility, unless you have an umbrella policy.
Setting higher deductibles and lower limits, allows your insurance company to assume less risk. By your carrier assuming less risk, your premiums may be significantly lower. In the event of an accident, your financial responsibility may be greater since you have an aggressive deductible and lower limits to make up for.
Ultimately, when using deductibles and limits to create an affordable auto insurance policy, you want to make sure you find the right balance.
- Can you afford the deductible? You should be able to pay your deductible without going into debt or having to remove the money from an account with penalties for early withdrawal.
- Do you have resources for claims that exceed limits? If you have a claim that exceeds the limits of your policy, you should try to pay the claim with funds that are readily available to you.
- Is it worth the risk? Finally, make sure you perform many policy comparisons with lower deductibles and higher limits to make sure that your premium savings are really worth the increased exposure you have. Consider the changes in premium that these adjustments bring and then consider the amount of money you will need in reserves to pay your additional responsibility.
Shopping for auto insurance is not just about finding the lowest premium. With a little finesse, you and your agent can design a plan with an affordable premium that offers you the coverage you need.Call us today at 800-220-5582 for more information or get a free Michigan auto insurance quote.