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Diminishing Deductibles: What are they and how do they work?

Diminishing deductibles are programs offered by some insurance carriers that through a number of different means, the insurance carrier agrees to reduce the collision deductible of your vehicle for your next claim by a pre-determined dollar amount at certain intervals throughout your policy period.

For example, “Insurance Company A” starts you out with a $500 deductible.  If 6 months passes and you don’t have a claim, they reduce your deductible down by $50 to $450.  Then at every 6 month interval that passes that you don’t have a claim, it is reduced again until it reaches $0. 

Like mentioned previously, terms of these programs may vary from one company to the next. However the main thing that Insurance Companies hope to achieve through this type of program is to keep your loyalty for as long as possible.  Once you have built up tenure with your policy and get your deductible reduced to $0 after 10 years, very much less likely to change companies, even due to rate increases!

In truth, the deductible should be very low on the list when it comes to either staying with or choosing who insures your assets!

The most important reasons to be with any insurance company:

1. Insurance Agent – Your Insurance Agent is your advisor and first line contact person with every dealing that has to do with your home and auto insurance.  If you don’t like your agent, then you will have a bad experience every single time you need to get anything done!

2. Insurance Company Claims Service – The reputation and financial strength (AM Best Rating) are important!  If the company wont or cant pay your claim, there really wasn’t any point to using them in the first place!
3. Insurance Company Customer Service – From time to time, you might need to talk directly with your insurance company, most likely in the event of a claim for reporting and settlement.  Kind and helpful representatives are essential to service.
4. Insurance Policy – Insurance polices are not the same with every company regardless of if it’s a Home, Auto, Commercial or Umbrella.  Some companies might offer guaranteed replacement, others will offer extended replacement on your home.  You might have an Auto Policy that includes free GAP Coverage.  Or on the other side, your homeowners policy might exclude certain types of losses that your particular home might be susceptible to (difference between Named Peril and All Risk on Homeowners Insurance).

Reasons 3-4 point directly back to your Agent.  Because your Agent deals with your insurance company and many other insurance carriers on a daily basis, they should know without a doubt which has the adequate Financial Strength, Customer Service, Claims History and Insurance Policy Coverage Terms.

GetCoveredUSA.com Tip: How to reduce your deductible to $0 and still be able to change insurance companies at will!

Heres a suggestion to save some money, this works especially well if you have more than one car:

1. How prone are you to having claims?  If you can answer 3 or more years since you last made a claim, you can easily save money by using this tip.  Say your deductibles right now are $500.  Find out how much money you would save if you were to increase them to the next level, generally $1000.  Take the dollar amount you would save and figure out how long it would take for you to save $500 to make up the difference.  If its approximately 3 more years then the odds might be in your favor that you can go 3 years without having your next claim.  If it takes longer than 3 years to make up the difference in deductible amount you are risking up to an extra $500 if you were to have a claim.  However if you can afford the difference, its definitely worth starting down the path of savings!
2. Every policy period when your insurance renews, place the amount that you saved by having the higher deductible in a separate savings or investment account.  This plan accumulates reserve cash at a much faster rate if you have multiple cars.
3. Once you reach enough in the account to raise your deductibles again.  Do another review and see if you can move upwards another bracket.  Or you can just continue with the same deductible and keep funding your new account.
4. If you end up having a claim, use the money in the account towards your deductible and start over or back a couple steps.
5. If you end up not having a claim you have just earned free money and you have created your own diminishing deductible program!

Generally the rate difference between each deductible bracket on your comprehensive and collision insurance policy equal or exceed $50/6 months on each step. So you could easily save $200 per year by going from $200 deductible to $1000. With 2 cars, you can have a reduced premium and a $0 deductible within 2 years! By the standard company rate of $50 per 6 months, it will take you 5 years to get from $500 to $1000 and even then they dont give you the money if you dont make a claim. With our method, you keep your own money!

Other Notes:

Some companies will waive your Comprehensive deductible under certain circumstances such as, hit by uninsured motorist and they are identified or maybe if the vehicle is stolen and not recovered.  Be sure and ask your agent about options available for your policies!

Interested in finding out more?  Send us a Quick Quote and we’ll have an Expert Agent available to help you

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