I thought I would share a personal story today about automobile insurance. Most people are familiar with the concept of a higher deductible leading to a lower insurance premium. For those that are not, let me explain it really quickly:
The deductible is essentially the amount that you pay out of pocket if you need to make a claim. For example, if you have a $500 deductible and get into an accident that caused $1000 damage to your car, you would pay the first $500 and the insurance company would cover the rest. If the damage was $501, you would still pay $500 and then the insurance company would cover the $1 remaining – of course you may not want to file the claim in that case for a measly dollar, but you get the point.
If you raise the deductible, from say $500 to $1000, then your premium goes down because the insurance company has less on the line. There would be more minor accidents that wouldn’t even be worth claiming in this case since the threshold for payment is now $1000.
A few years ago, I realized that I had been driving for 12 years and not once had an accident. I figured I could save a few bucks by raising my deductible from $500 to $1000. I forget the exact number but it dropped my premium by about $100/year. I figured that as long as I could avoid having an accident more than once in every 5 years I would come out ahead. If I had an accident, I would have to pay $500 more than before, but I would save $500 every 5 years (not factoring the possible increase in premiums due to multiple accidents though).
A week later I was talking to a co-worker about my new camera phone – all the rage back then – and one great use was for insurance claims. If you got hit in a car accident you could take photos of the accident scene to corroborate your story if need be. Well wouldn’t you know it, but the VERY next day I get plowed into (t-boned) by an 18 year old in a parking lot who had his license a whole 6 months. He absolutely gunned it right into my driver’s side rear wheel.
Really? This just had to happen right after I raised my deductible?
I remember thinking to myself, as I was taking pictures with my new camera-phone of the “crime scene”, that as long as I don’t get into another one in the next 5 years, I’m okay… lol
As luck would have it though, since the accident was so clearly the fault of the other driver who admitted fault right away, HIS insurance actually covered everything and there was no claim filed on my policy at all. So I didn’t have to pay a penny and I have been saving that $100/year ever since. So far, that has been the only accident I’ve had.
Hopefully by writing about it, fate won’t pull the old camera-phone lesson on me again though, and I won’t get into an accident tomorrow. Good lord, what have I done…