A Vanishing Deductible For Car Insurance May Cost You More

by Hank Coleman

There are many car insurance myths.You may have seen all of the advertisements on television for a vanishing car insurance deductible. But, you may not know exactly how it works or if it is even worth your time and energy to investigate adding it to your car insurance policy. You know doubt have car insurance questions and probably want to know how a vanishing deductible work.

What Is A Car Insurance Deductible?

Most people who own a car and pay their own car insurance understand what a deductible is. The deductible for your car insurance is the amount of money that you pay out of pocket should you need to file a claim and you are at fault. 

For example, if you caused an accident and the damage to your car and the other car is a grand total of $10,000, you would file a claim with your car insurance company and simply pay your deductible. Your car insurance company pays the rest. You choose the amount for your deductible, and it directly impacts your monthly car insurance premium payments.

The higher the deductible on your car insurance typically equates a lower the monthly payment. Although sometimes the discount is not worth the risk drivers take. Many policyholders have a $500 deductible. And, raising your deductible up to $1,000 can lower your insurance premiums to a certain degree.

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Vanishing Deductible – How Does A Deductible Vanish?

A new program from a car insurance company offers a vanishing deductible. If you have never filed a claim with the car insurance company and sign up for this new feature offered by Nationwide and Allstate Auto Insurance, you can see your car insurance deductible start to vanish. In the program, you receive $100 off your deductible for each consecutive year you do not file a car insurance claim.

The insurance company hails it as a way to reward safe drivers, and the limit on the discount is capped at $500. As a result, unless you have just a $500 deductible, your deductible may never completely vanish (for example, if you elect for a $1,000 deductible). But, if you have a $500 deductible on your car insurance policy and have not filed a claim in the past five years, you would not be responsible for paying a deductible on your next accident.

Is A Vanishing Deductible Worth It?

It is also important to note that the vanishing deductible is an optional feature that you choose to add to your car insurance policy. It is not included in the insurance companies’ standard car insurance prices, and you will have to pay a fee in most cases to add the vanishing deductible feature to your car insurance policy.

Do not make the mistake of assuming that the vanishing deductible feature is included in your insurance policy automatically. You pay a slightly higher premium rate for this feature than you would have paid on a standard car insurance policy. For example, your insurance premium may rise by $5 per month or more when you choose to enroll in the vanishing deductible program.

That equals an expense of $60. Now, you may think that an extra $60 per year is not a big deal, but that is a lot of money to pay for the privilege of possibly not having to pay $100 on your deductible. You may never use the feature and that money continues to simply be paid to your car insurance company and go straight to their bottom line.

A deductible for your car insurance is something you only pay if you file a claim and are at fault. There is a cost benefit analysis that policy buyers must make. Should you have a high deductible or only $5000? How much does a $1,000 deductible actually save you on your premiums? It may not be enough to cover the extra risk.

How much do you pay for the benefit of having a vanishing deductible? Will you be accident free for five years or more? Unfortunately, the odds are against you and the increased premium rates that you pay for this new feature of a vanishing deductible tends to translate into more fees for the insurance companies.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 575 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 10 comments… read them below or add one }

Jai Catalano

I do a $500 minimum so I don’t feel screwed if something happens. I always feel $1000 is just too much.

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Newlyweds on a Budget

I raised my husband’s deductible from $500 to $1,000 for both collision and damage. Saves us about $50 every six months, $100 for the year. his car is older, so if he got into a serious accident, we’d have to replace it anyway.

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Paul @ The Frugal Toad

We have $500 deductibles on our cars and $1000 on our home. The difference in premiums was substantial so we went with the higher deductibles.

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Gabriellie

This isn’t over a large sum of money. We are not trying to get anything for injuries, She says she is fine but I personally would like my daughter to at least see a doctor just in case her neck or back does bother her. My insurance says that our insurance would not cover this but probably one of the other ins. companies would…eventually. I cannot believe we have $300K liability for others-including uninsured drivers but we do not have any insurance that would cover our injuries. Why would a co. sell this policy and not offer insurance that covered our injuries? I just (wrongly) assumed we were covered if injured.

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Ian B

Most states require PIP coverage. It’s usually capped at about $5000 per person. Its main purpose is to cover the gap left by your health insurance deductible.

Little-known fact: If you break your toe when kicking your tires while the car is parked, your auto insurance kicks in first. I found that out when I caused myself 22 stitches due to a sharp edge on my trunk lid one dark and rainy night.

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SB @ One Cent At A Time

I have a $1000 deductible and I have $1000 saved for car emergency. My premium is really low. So I am not complaining and not paying for this vanishing deductible either. Thanks for posting, good to know how this works.

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Jackie

I have never heard of this before. (I don’t watch TV, and try to skip radio ads.) I can see where it could appeal to people, but in addition to the costs you mention, I don’t see the real advantage. If you haven’t gotten into an accident, you’re not paying your deductible anyway. And if you do get into an accident and it’s not your fault, the other person’s insurance would be responsible — unless they were uninsured or underinsured.

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101 Centavos

Learn something new every day in the Personal Finance space. I must say I’d never heard of a vanishing deductible. For just a millisecond at first glance I thought it might have been a sneaky provision in a typical insurance contract. Vanishing coverage, perhaps… 🙂

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Magie

thanks for good post ,I have a $1000 deductible and I have $1000 saved for car emergency. My premium is really low. So I am not complaining and not paying for this vanishing deductible either.

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David

Hmm i’m slightly dubious as to how well this will work out and how severe the consequences will be if you make a claim. That being said it does sound like a great way to save money providing you don’t have any accidents! Thanks for the great share anyway

Reply

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