What is a Disappearing Deductible?
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The act of a vanishing deductible is no magic trick.
Instead, it is a tactic insurance companies use to lower or reduce your deductible each year as long as you have zero accidents on your record. For some motorists, a disappearing deductible is enticing. After all, if you eventually got your deductible down to even $100 from $800, if you had to file a claim that is a lot less out of pocket.
While disappearing deductibles are great, you have to consider how they work, which insurers even offer them (not all do), and whether they make financial sense for your household.
How Does a Disappearing Deductible Work?
One keyword here is “collision”. Your comprehensive deductible does not vanish in most programs. Some will reduce both, but the majority of those companies offering a disappearing act only allow the collision deductible to go down each year.
So, for example, you may start with a $1,000 collision deductible and $150 per year in premiums. Next year, as long as you remain accident-free, your insurer reduces it to $900 for the collision deductible and $150 per year for your premium. Your premium stays unaltered. The incentive here is to remain a safe driver and get your deductible as low as it can go.
How Low Could Your Disappearing Deductible Get?
While it sounds like your deductible could go down to nothing, this is not the case. Most insurers cap the level around $50 to $100 minimum.
The Caveat: Your Deductible Spikes after an Accident
If you spent years driving safely only to get into an accident, most insurance programs with the vanishing deductible program would raise your deductible back to the original start afterward – so if you went from $1,000 in collision deductibles to $500, you could go right back up again after a single incident.
Which Insurers Offer these Vanishing Deductibles, and Who Gets the Best Deal?
Multiple insurers offer decreases in collision deductibles, but each company has unique rules and limitations. The most popular insurers include Allstate, Liberty Mutual, and Nationwide. Allstate was the first company to offer a vanishing deductible, and most companies followed after quickly to stay in the competition.
How the Allstate Program Works
Allstate refers to their program as “Deductible Awards,” which removes $100 immediate upon signing up, and then $100 per year with no accidents. The maximum allowed is $500. Therefore, you cannot remove more than $500 from your collision deductible.
Also, Allstate puts limits on which insurance plans qualify. You will not unlock this disappearing act unless you purchase a Gold or Platinum Your Choice Auto Package. Doing so often ends up costing you more, but those programs also include accident forgiveness – so it could make sense if you travel a lot in high traffic areas and you have a tendency for encountering accidents.
How the Liberty Mutual Program Works
Each year, Liberty Mutual also removes $100 for every year you go without an accident. They also, like Allstate, give you $100 off just for starting a program with them. Liberty Mutual does not care about your accident record before either. Instead, they only care about the accidents you have after you join with them.
Liberty Mutual is one of the few to offer a chance for a $0 collision deductible, but in some states, like New York, they are bound by state laws and the minimum is $100.
Unlike others, Liberty Mutual doesn’t punish you by hiking up the deductible to its original state. Instead, after an accident, you remain at the lowered amount.
How the Nationwide Program Works
Nationwide removes $100 per year up to $500 maximum. They are one of the few to remove it from collision and comprehensive, and if you were in an accident, your deductible raises by $100. You have to pay for this program, which is $60 per year, and an extra $10 per additional cars on the plan. Therefore, if you think of the cost per year and savings, you are almost investing in the program and not necessarily getting much back unless you can maintain that $0 deductible; which means you are only paying $60 per year extra in premiums.
Is a Disappearing Deductible Program Right for You?
At first glance, you may say it looks excellent and hop into the program. However, you need to sit down and do the math. Some of these programs require you to pay for the chance at a $0 deductible. Also, an accident often creates an increase in policy premiums, and with some of these services only unlocked by higher cost insurance plans, you may end up paying more than you would for a lower insurance plan and just dealing with the lesser chance you have to pay a deductible in the future.