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At a cost, companies will reduce your deductible a certain amount every year you are accident free with a vanishing deductible program. We have discussed before the relationship between your deductible and your monthly car insurance payments. It’s a balance--set a high deductible and low premium, hoping you don’t get into an accident, or be risk-averse, and pay a low deductible with a higher premium. Some companies try to make the decision easier by offering these vanishing or disappearing deductibles. Is it worth it though? In this article we will explore the merits and demerits of the program.
How Do Vanishing Deductibles Work?
The crux of the program is that your collision deductible will become less expensive after every year of clean driving. Notice we say "collision" and not "comprehensive". In four of the five programs we explore, only the collision deductible is reduced. So if you have a $500 collision deductible with a $200 per year premium, the next year it could be a $400 deuctible with the same $200 per year premium. Essentially, when you opt for this type of program, you are hoping to benefit from the best of both worlds-- a low deductible and a lower premium.
The amount your deductible actually lessens depends on the company however. For some its $50, others $100. A common characteristic of each program however is once you get into an accident, sometimes regardless of fault, the deductible goes back up to the starting amount. Some companies also impose limits, as in, they will only reduce your deductilble by $500.
Which Car Insurance Companies Have Them?
As opposed to accident forgiveness, which most companies offer, only a handful of companies have vanishing deductible programs. The five largest companies to offer it are Allstate, Liberty Mutual, Nationwide, The Hartford and Allied Insurance.
|Company||Yearly Price Reduction||Clean Driving Required?||Limit?||Type of Deductible|
|Allstate||$100||No||Up to $500||Coll|
|Nationwide||$100||No||Up to $500||Comp & Coll|
|Allied||$100||No||Up to $500||Coll|
Called “Deductible Awards”, Allstate will take off $100 from your deductible when you sign up, and another $100 for each year of clean driving, up to $500. There is a catch however--you need to purchase a Gold or Platinum Your Choice Auto Package. It is hard say what the price for a Gold or Platinum package may be, as it depends on the driver and the state, but it will be more expensive than whatever you would normally pay. The upside to Allstate’s program however is that the Gold or Platinum package also comes with accident forgiveness.
The Liberty Mutual Deductible Fund takes $100 off your collision deductible every year you're accident free, and also takes $100 off as soon as you start. Two perks of Liberty Mutual's program is that you do not need a clean driving record prior to starting, and it covers all vehicles on your plan--other programs usually charge extra for more vehicles. It will also reduce your deductible down to zero in the vast majority of states with the exception of New York, where the minimum is $100. Additionally, your deductible will stay at its current level even if you get into an accident for the rest of the policy year. The cost will depend on your policy, but it can be less than $50 per year.
Nationwide’s program takes off $100 every year up to $500, with the key difference being that the reduction applies to both your comprehensive and collision deductibles. You do not need a clean driving record, and if you do get into an accident, your reward goes back to $100 rather than 0. The cost of the program is $60 per year and $10 for every additional car.
When you buy an Advantage Plus Plan, you get The Hartford’s “Disappearing Deductible”. The Hartford, unlike other companies, does require you to be five years (three with them) accident free in order to qualify. Your collision deductible is reduced by $150 immediately and then $50 for every clean driving year thereafter. In some states you can even get the deductible down to $0. An exact price of the program is difficult to obtain, but it will likely be around 5 to 10% more expensive than a normal package.
Allied offers $100 off every year, up to $500, when you are a clean driver. Furthermore, if you do not make a claim within 30 days of starting your policy, you will get $100 automatically taken off. As with most other programs however, the collision deductible is the only one affected.
Is a Vanishing Deductible Worth It?
While it may seem worth it initially, you will have to do some math to figure out if you still come out ahead. The exact pricing of some of these programs is difficult, but since we know Nationwide’s cost is $60 per year, we can use that as an example.
For $60 a year, you would be spending $300 in five years for the vanishing deductible with Nationwide. If you were to make a claim within those five years (when your original deductible was $500), you would come out $200 ahead. In this case, the program saved you money. On the other hand, if you continue with the program for five years, and do not get into a single accident, you would have spent an extra $300. Whether this program is valuable is highly dependent on the likelihood of getting into an accident, and your risk tolerance. Without one, you may end up paying your deductible amount in a few years.
An interesting point to remember however is that with Allstate, you also get accident forgiveness. An accident can cause your rates to skyrocket, so an accident forgiveness benefit can potentially save you thousands. The two for one, vanishing deductible and accident forgiveness, may make Allstate’s program the most worthwhile. Again, it all depends on the likelihood of you getting into an accident.
An alternative may be to just get a $1,000 deductible and then set aside $1,000 in a “rainy day fund”. At least in this situation, you do not need to pay an extra $50 a month for the disappearing deductible feature, and you still have the lower premiums. A disciplined savings account can be the best policy over a potentially costly vanishing deductible.
Finally, you should follow the steadfast rule of car insurance, and shop around. These five companies can offer higher prices in your area, meaning there can be a cheaper company that will save you more, regardless of vanishing deductibles. The best car insurance is always in your area; you just have to search for it.