Student Credit Card and Credit Education Blog

Want to be smart about how you approach auto insurance? Ever wonder about how to set your deductibles? Here is how I kept my insurance payments low by setting a high deductable and then only having to pay $150 of my deductable anyway. I recently crashed my 2007 Ducati GT1000 motorcycle last Friday on the way to work. I was taking a left hand turn and lost traction on a wet crosswalk the result of which landed me on my helmeted chin and my bike on its side. Other than a bruised ego I’m fine but the motorcycle needs $3,000 in repairs.

When I called my insurance company I asked them how much a $3,000 claim will impact my yearly premium. They said that it would raise my premium about $600 for the next five years. If you do the math, in essence I’ll be paying for the repairs myself over time on top of my regular insurance payments. So what are my payments for? Or better yet what were my 10 years of accident free payments for? Apparently only to have the slip of paper proving I have insurance. So while not every increase in premiums is going to mathematically work out perfectly like this, if you make a claim your premiums will go up and you will in essence start paying for the repairs yourself.

So how does this impact your auto insurance strategy? Since the payments you make all those accident free months don’t benefit you but rather your insurance companies own investment portfolio, you should keep them as low as possible. This means raising your deductibles as high as they can go. What if I get in an accident and I can’t afford to pay a $1,000 or $1,500 deductible you say? Sure you can afford and you can get the benefit of having your money work for you and not your insurance company.

Get an auto insurance quote with the minimum deductible and another with the maximum deductible. Figure out the difference and instead of giving it to the insurance company to have for their own investments, put it into a high yield savings account like the Orange Savings Account and let your money work for you and not them. (If you win a scholarship at www.ScholarshipPoints.com by entering the code: INSURANCE that will help keep cash in your savings account too.)

If you get into an accident it’s better to have a high deductible for which you’ve got a savings account set up. A high deductible means you’re going to end up claiming less because your claim is the total damage estimate minus your deductible. That means your insurance premium will go up less as well saving you even more money. Anyway you look at it making your deductibles as high as possible is the smart move. That is if you can be disciplined and save the difference between the two premium quotes.

Hopefully this saves some of you some money and encourages you to start saving more as a way to insure yourself. I also hope that you take it easy turning wet corners on crosswalks while riding a motorcycle or bicycle or razor scooter.

PS. To even make my point more exciting, my insurance adjuster just looked at my bike and since some of the damage is very minor and hardly noticeable he asked me if I would accept half the payment for a few items and in return the insurance company would lower the deductible I actually have to pay. For mt $1,000 deductible I am actually only going to pay $150 and live with a scrape on my kickstand and the bottom of my muffler which nobody can see so I saved lots of money by keeping my deductible high.

PPS. I should mention that if you buy and insure a nice new car today and smash it up tomorrow before you’ve had time to save the deductible you’re probably in trouble. This tip is a suggestion for those who can save. If you cant be responsible enough to save this might not make sense for you but if you are a saver this is the way to go!

Ready? Here it is:

Relax and take a deep breath.

When faced with financial troubles remember that it’s only money, a man-made symbol of value which is traded for other items with perceived values. It’s not your life, your health, your family, your pet or anything that nourishes your spirit. It’s not always easy but if you can remember that and keep financial troubles from getting you down and letting your emotions rule your head you’ll come out of them far better off than if you let yourself get so down and depressed that you can’t see all the options in front of you.

The surest way to get into a financial bind is to let a small financial scratch become a major wound due to panicking or over-reacting with an emotional response. In other words very few financial struggles need to be resolved in 5 minutes unless they have to do with “Vinnie the Bookie” finally catching up with you in a dark alley. In most cases there’s a short term band aid and a longer term solution needed. It’s always a good idea to write an issue down on paper and then sleep on the problem or at least wait until your emotions subside about whatever it is. You’ll find your perspective will be a little different and you’ll see options you didn’t see before.

I have a friend who recently got into a bind with making a couple of late payments to some credit cards. He had a handful of cards between store cards and regular credit cards and was having trouble making his payments. He panicked went out and signed up for a consolidation loan with an interest rate higher than his credit cards had but it offered only one payment and a lower total payment than he was currently required to pay. For that benefit the loan was also going to make him pay more than double what he borrowed when all was said and done.

When he told me what happened I sat down with him and he said he didn’t have a budget so we downloaded the budget from http://www.studentplatinum.com/budget-template/ and started to look at his income and expenses. Once it was all in front of him he saw that he made more than enough money to cover his credit card payments and by listing them on his budget he was able to remember their due dates. I then gave him the credit card debt reduction plan and he figured out the smart way to pay off his credit cards. He took the money from the loan and paid back the loan and then started using a simple budget. Four months later he sent me an email telling me he paid off 4 of his 5 credit cards and was able to get the interest rate lowered on the fifth and was doing great.

The lesson is that there were two problems, one short term and one long term. He made a couple of late payments and that’s bad. In the short terms he needed to make the payments, call and see about getting the fees refunded but then calm down and take a look at the big picture. Long term he had to decide why was struggling? He thought he didn’t have enough money but really didn’t know where his money was going. In his panic he almost did something that was going to cost him a lot more money in the end to fix a problem that was really just a behavioral issue with the way he managed his money (it might have helped if he won a scholarship on www.ScholarshipPoints.com by entering the code: BESTIPEVR worth 10 points).

So remember relax, it’s only money. If you get yourself into hot water you can get yourself out. There will be penalties but you’ll want to make them as small as possible and to do that you need all the time available and a clear head to get the right solution. This doesn’t just apply to debt either. Letting your emotions cause you to buy a stock, a pair of $500 shoes or that timeshare in Kosovo is bad news. Think it over first and decide when you’ve had time to do a sanity check.