Written by Tim Marsh:
Your car is a valuable asset. Even if it is not brand new, it is likely still worth thousands of dollars and while compulsory third party insurance covers against injury or death in the event of a collision, it does not cover the cost of damages to your car and property or other people’s car and property.
The Cost of Protecting Your Property
Only comprehensive coverage covers these costs. Like a safety net, comprehensive car insurance protects you from costs associated with a collision, theft, fire, storm, or flood. Not only does it pay the bulk of repair bills for your own vehicle, but it also covers for the other driver’s automobile and property damages that are a result of a collision involving your vehicle. However, comprehensive coverage is not always economical; for some it can be prohibitively expensive. So, what can you do to save money while still maintaining protection?
Weighing Your Options
As a general rule we advise against increasing the excess in your comprehensive insurance policy because there are too many variables and you just never know what may happen.
Considering that your cell phone ringing, your kids yelling and playing, your own or someone else’s dog barking or literally thousands of other distractions in your surroundings could inadvertently cause you to crash by running off the road, over correcting an error in your driving, missing a traffic sign or signal, or numerous other consequential actions.
What’s more disheartening is that even if you are confident in your personal ability to avoid an accident, there is always the uncertainty of other drivers and their distractions.
Still if you feel sure that you can successfully evade an accident, you can certainly save some substantial insurance premiums each year you avoid a comprehensive car insurance claim. It may also be a preferable option if you cannot quite afford the premium when it is due unless you increase the excess. This option is definitely better than just opting for the third party property coverage instead of comprehensive insurance.
Understanding and Accepting the Personal Risk
The reason increasing your excess results in cheaper premiums is because it shifts some of the risk from the insurance company back to you. However, if you are involved in an accident and have made these changes to your comprehensive car insurance, you can expect to pay considerably more out of pocket.
As an example, consider this recent scenario:
One of our clients recently took out insurance on her new vehicle and increased her excess from the standard amount of $600 to $2100 which brought her premium down from $2300 to $1650 a year. This is a substantial amount of savings over the original comprehensive insurance cost, but it is also a huge gamble and could come at a significant price.
For this scenario to work in the client’s favor, she needs to go without an accident where she is at fault for 2.25 years. If she were to have an accident, she would be responsible for paying $2100 before her comprehensive car insurance would pay anything. So clearly, there is a significant risk to consider before making such a change.
A Final Word of Advice
When making any changes to your insurance policy, it is vital to educate yourself with research, weigh your options and carefully mull over all of the factors involved. Never decide on a whim that you are going to increase your excess; just because the savings look good on paper does not mean it is the best solution for you.
Conversely, if you can afford to pay the difference in the event of a collision, it may be the perfect way to save some money for the moment and if you are successful in avoiding any claims, you will have a tidy sum to show for it. There is no right or wrong way to adjust your excess and resulting policy, just be aware of the potential consequences.
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