When you hear the term “vanishing deductible” for auto insurance, a magic trick might come to mind. A vanishing deductible definitely can work some magic with your auto insurance costs. But before you consider signing up for a vanishing deductible, make sure you’re not being tricked into spending more money than this benefit might offer.
Simply put, a vanishing deductible gives you credit for being a good driver. It means that your deductible is reduced (often by $100) each year that you are accident-free. You might even get an automatic deductible decrease just for signing up.
Keep in mind that while your deductible may go down and even “vanish,” your premium might go up or down at the same time, depending on a variety of factors.
Can every motorist get a vanishing deductible?
A vanishing deductible is an option available to many, but not all, motorists. For instance, your state might not allow insurers to offer a vanishing deductible program. Also, an insurer might limit this option to drivers who maintain clean records for a set number of years.
In most cases, a vanishing deductible applies to the collision portion of your auto insurance policy. Collision coverage pays for damage or replacement when your car crashes into another car or an object (such as a tree).
However, an insurer might also provide a vanishing deductible for the comprehensive portion of your policy. Comprehensive pays for damage from caused by covered events such as fire, flood, hail, wind, theft and vandalism.
How does a vanishing deductible work?
In some instances, you’ll find that an insurer will cap the benefits from a vanishing deductible at $500. Here’s an example of how a vanishing deductible can work:
Your deductible for collision coverage is $500. You’ve been accident-free for three years, and you’ve collected $300 in vanishing deductible benefits. But then you get into an accident with another car. Instead of having a $500 deductible, you’d pay only $200 ($500 deductible minus $300 in credit = $200) before your insurer pays to fix the damage to your car.
Once you do have an accident, though, your deductible might be increased or return to its original amount. While this sounds great, be aware that a vanishing deductible does come at a cost. Typically, in order to enjoy a vanishing deductible, you’ll have to pay a higher premium.
Let’s say your premium increases by $50 a year when you sign up for a vanishing deductible. Over the course of five years, that’d be a cost of $250. But if you file a collision claim after you’ve reached a maximum vanishing deductible of $500, you’d wind up saving $250 ($500 deductible minus $250 in higher premiums = $250).
Should you get vanishing deductible auto insurance?
But if you don’t get into an accident, you might pay a higher premium without taking advantage of the vanishing deductible. So, is it worth it?
It depends on how much risk you’re willing to take. If you’re worried that you’ll get into an accident, then it makes sense to pay a little extra for a vanishing deductible. But if you’re confident that you’re a safe driver and won’t be involved in an accident, then paying a higher premium in exchange for no deductible (or at least a lower one) might not be worth it.
If you’re not sold on the vanishing deductible, there are other ways to cushion your finances. One is to open a savings account solely for paying your auto insurance deductible in case you have to file a claim. Another option is to raise your deductible in order to lower your premium and bank the savings.