Don't be a sucker: how to get the most value for your dollar on car insurance

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Most consumers don't understand how to intelligently shop for car insurance. And this is well demonstrated by the fact that there are still low deductibles available in the industry. Some people buy car insurance with a $50 deductible or a $100 deductible; and this is a terrible financial decision on the part of the consumer. If I had a choice, I would buy car insurance with a $5,000 deductible or higher, but unfortunately no such deductible amounts are even offered by the insurance industry.

What's the deal with a high deductible? If you buy a low deductible car insurance policy, you are paying far more for that policy than you would if you had a higher deductible. The cost difference between a $50 deductible auto insurance policy and a $500 deductible is so significant that you would probably save $500 every couple of years or less and be able to put that money in your own pocket rather than sending it to the insurance company. Furthermore, these policies are marketed to people with some rather unscrupulous sales tactics: the insurance agent might say "Gee, what happens if your windshield gets broken? You don't want to be more than $50 out of pocket do you?" And the consumer, in a zombie-like state of mind says "Sure, I don't want to be more than $50 out of pocket!" And then the insurance agent says "Well, then you need a $50 deductible on your policy and that will only cost you $200 more every year!" And most consumers don't do the math, so they fall for this trick and they end up paying far more out of pocket because they can't afford, they think, to pay out of pocket for some kind of claim or damage to their cars.

It's almost as if people are somehow led to believe that if they pay more money, they won't have to pay more money.

It's interesting to observe how people who are financially poor tend to make decisions. They overpay for everything: they spend more on their auto insurance policies, they spend more on car repairs, and they spend more on their grocery shopping. But people who have accumulated financial wealth make better financial decisions because they know how the system works. They buy auto insurance policies with higher deductibles, because they have the extra $500 in case something happens, and they know that in terms of risk versus reward it's much smarter to buy a high deductible policy and pocket the difference. The only people who generally accept these low deductible policies are people who are already in a state of financial crisis, and they will probably stay there forever until they wise up and start making better decisions about how to handle their money.

Low deductible policies are "suckers' policies" sold to people who can't do the math. They're never worth the extra cost unless you're such a terrible driver that you happen to smash into other cars or objects on a regular basis, in which case your auto insurance rates are probably sky-high anyway, and you shouldn't be on the road at all.

But for everyone else, set aside an extra $500 or $1,000, put it in a savings account, don't touch it, keep it there in case you need it, and then switch your auto insurance policy to a high deductible policy. You will save so much money over the long run that you'll be able to start pocketing several hundred dollars each year that you would have otherwise spent on car insurance.

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