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How Disappearing Deductibles Affect Car Insurance Quotes

Aug. 27, 2015
Auto Insurance, Insurance
How Disappearing Deductibles Affect Car Insurance Quotes
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Setting a high deductible might seem like a good, money-saving idea when you’re looking at types of car insurance coverage. Generally, the higher your deductible on collision and comprehensive coverage, the lower your rates. Many people have deductibles of $250, $500 or $1,000, though they can be higher — up to $2,000 or $5,000.

But a high deductible can be a bummer after a car wreck. Your insurer will subtract your deductible amount from your insurance claim check. You’ll need to pay the difference in order to repair or replace your vehicle after an accident.

Some car insurance companies have a perk to ease the pain: They offer “disappearing” or “vanishing” deductibles on collision damage, and at least one company offers the feature on comprehensive coverage, too. But the disappearing trick isn’t free, so you’ll need to do a little math to decide whether it’s worth the extra cost.

How disappearing deductibles work

Disappearing deductibles are an optional coverage feature. Program names and details vary by insurance company and, in some cases, by state. Usually, your insurer lowers your deductible by a certain amount each year for as long as you pay for the option. The deductible resets after you make a collision or comprehensive claim, depending on the carrier.

Here are some examples:

  • Allstate’s Deductible Rewards program gives you $100 off your collision deductible when you sign up and an additional $100 off each year you continue driving safely, up to $500. The feature is part of the company’s gold and platinum Your Choice Auto packages, which include other perks, such as accident forgiveness. Customers don’t need a clean driving record to sign up, and moving violations don’t affect deductible rewards. It’s difficult to provide a cost estimate for the program because it’s always part of a package, and the cost of the packages varies by state, says company spokesman Justin Herndon. “Customers can work with their local agent to determine what works best for them,” he says.
  • The Hartford’s Disappearing Deductible is available when you upgrade your policy to Advantage Plus, a package of extra features. You can sign up for the package at any time, regardless of your driving history, but in most states, all drivers on the policy must have a clean driving record for three consecutive years to earn the disappearing deductible, says Marc Natrillo, The Hartford’s director of product development. Once you’re eligible, the insurer will immediately reduce your collision deductible by $150. It shrinks by another $50 each year you stick with the company and maintain a clean driving record. Keep up the good driving and the deductible will disappear all together, except in states where the company is prohibited from reducing it below $100. After an accident or moving violation, it returns to its original level until you’re accident- and violation-free for three years. On average, upgrading to Advantage Plus increases customer premiums by about 7%, Natrillo says.
  • You’ll receive $100 in your Liberty Mutual Deductible Fund when you sign up for the option and another $100 each year that you don’t have an accident. The benefit applies to all of your vehicles, and there’s no limit to how much you can earn toward your collision deductible. If you make a claim, and the fund exceeds your deductible, the company carries over the excess dollars. The cost of the program varies by state and the number of vehicles on a policy, but it can be less than $50 per year, says company spokesperson Glenn Greenberg.
  • If you have Vanishing Deductible, Nationwide Insurance knocks $100 off your deductible for every year of safe driving, up to $500. Unlike similar features at other companies, Nationwide’s deductible reduction option applies to both collision and comprehensive deductibles. The company doesn’t require a certain number of years of clean driving to qualify for the program, Nationwide spokesperson Alison Emery says. The deductible is reset after you make a collision or comprehensive claim, but a $100 credit remains as long as you pay for the program. The benefit costs $60 per year for one vehicle and $10 for each additional vehicle on the policy.

Doing the math

Before you sign up for a disappearing deductible, find out how your carrier’s program works and how much it costs. Compare the annual cost of the feature to the cost of lowering your deductible, say from $1,000 to $500 or from $500 to $250. You might be better off paying a higher premium for a lower deductible than paying for a feature to reduce it gradually.

If deductible reduction is part of a package, look hard at the other features and consider whether the package is worthwhile.

Opting for a disappearing deductible is a judgment call. The downside: You risk paying for the feature year after year without ever making a claim and recouping the extra premium cost. The upside: You’ll owe less out of pocket if you make a claim in a few years.

Don’t get so distracted by special features that you neglect to compare the total cost of coverage between insurers. Choose a company that offers the best customer service and coverage for the price.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: [email protected] Twitter: @barbaramarquand.

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