Bought a new car yesterday. Financed it because, well, 0%. I’ll take free money. I’ve never had a car loan before. When the finance guy was filling out the paperwork, he noted that my deductible of $2000 was high and I should have a lower one. He said something that implied that I had to have a lower deductible for the loan, but the paperwork I signed doesn’t say that.
Do I? Seems like that’s between the insurance company and me. If the car is destroyed, I assume I’m on the hook for the deductible, whatever it is, so does it matter?
It matters to the finance company because they need to protect the value of the collateral. I would be surprised if the paperwork doesn’t call for it, but if it doesn’t, then that’s their mistake.
Insurance requirements on loan collateral is very common. I believe that some mortgage companies will buy the insurance and add the premium to your balance if they determine that you are underinsured, but again that is stated in the paperwork.
Yes. It should be specified in the loan papers. You are on the hook for the deductible for any accident. The finance company wants to make sure you repair the car as long as it is their property.
Everyone always seems surprised, but my philosophy of insurance is that you should insure against catastrophic risks. $2000 is not catastrophic to me, and paying extra money each month to reduce my exposure to a pretty small risk isn’t worth it.
I have another car that’s worth maybe $4k, and I don’t have any insurance on it beyond liability. If I crash it, I’m out $4k. I can afford another $4k to replace it out of pocket, so I don’t insure it.
That’s certainly the most economically efficient way to do it. It’s what I do too.
But lots of people have decent incomes yet are asset-poor. Which means they are also cash-cushion poor. For them, paying the extra monthly cost of a 3rd party insurance premium is the only way they can withstand the sudden cash call of an accident / theft / etc.
Speaking as a former insurance agent (yes, boo, hiss) the answer is most likely yes. You would need to check your loan paperwork (as it would be required by your lender rather than anyone else), but most commonly it was $500 or $1000. One of the reasons above and beyond what has been mentioned in the thread is that a lot of new car buyers, especially those with zero/little money down are substantially ‘upside down’ on their loans.
IE they buy a car for a sticker of $20,000, which equates to a debt of $25,000 with interest, and a total loss value of $15000 (because it depreciates the minute you drive it off the lot). [[ yes, I’m making simple numbers for easy of explanation, but you get the point ]]. So if your car gets stolen 48 hours later, you get $15k, - 2k DED, or 13k towards a 25k loan. Ugly. Since you are financially sound, I worry less, but I would check to see if the lender or your insurance carrier provides a loan/lease payoff coverage.
In general though I agree, you adjust your coverage to your loss. I would periodically advise customers to drop COMP and COLL on 10+ year old vehicles (or just COLL and keep COMP for windshields and the like) but raise their Liability - a lot of people don’t realize that they’re paying $100-200 every 6 months for coverage on a car that had a Blue Book value of $1200 or so with a $500 DED. And some states (I’m looking at your California!!!) have ludicrously low amounts of required coverage to protect you from liability claims.
I lease my cars for business reasons. The leases on my current cars, a BMW and a Volvo, both specify a maximum $1000 deductible. It reduces their exposure at no cost to the lessor.
Indeed. I’m not saying that as a bad thing. However, as a lender, I would be a pretty bad businessperson if I assumed everyone could/would throw down the cash to pay me back.
We have all seen goods at the grocery store where the jumbo 2-gallon size is actually more expensive per floz than the more ordinary 1 quart size of whatever it is. They’re hoping people will fall for the simple rubric to “buy in bulk to save money”. The number of products where I catch my mainstream name brand multi-state US groc store at this trick is amazing.
As applied to insurance, it seems the sweet spot is an intermediate deductible.
The lowest deductible is definitely a ripoff because they know they have the cash-poor customer over a barrel. BOHICA, dude!
But … as between, say, $1000 and $5,000 deductibles you absorb a lot of incremental risk for a much smaller incremental premium reduction.
That makes sense. I suppose I shouldn’t be surprised if my loan requires a particular deductible. I see that it would be reasonable to do so. It just doesn’t seem to.
The difference in cost is like $30/year, so I just went with the lower deductible in case I’m missing or misreading something in the paperwork.
I have a thousand dollar deductible on my new Honda C-RV. It made a noticeable difference on my insurance as compared to what a $500 deductible would have cost me, but it’s something I can afford without being adversely affected.
Why is the age of the car relevant? The relevant factors in the decision are (1) how much does the extra insurance cost, (2) how likely is the driver to experience a loss that triggers the extra insurance, and (3) what are the consequences if the driver has to bear the extra loss? The age of the car shouldn’t factor in the decision any more than the amount of cat fur on the owner’s sofa.
The age of the car greatly affects the rate and amount of depreciation. Which in turn may affect how the lender feels about the size of the deductible they’re willing to accept. Because the car owner is liable for the difference between the loan amount and the post-crash value of the car.
You’re right it shouldn’t matter directly to the buyer. So called “Gap” insurance also exists for a reason; lots of people can’t afford the depreciated value vs loan balance gap they get into.
When you havent paid a car off, you need to have enuf insurance to cover the loan.
Say you bought a Gashawg66 for $25000. You put $1000 down and got financing for the rest. But you have a $2000 deducible. It gets totaled on your way home. Insurance will pay the finance company $23K (or maybe not since it depreciated, but let’s leave that aside). Finance companies dont like having to go after you for that $1000 difference.
Often they will require you to have only a $1000 deducible.
In general COMP is cheaper for a few reasons. The tend to be (outside certain geographic regions) less common, they’re less severe, and require less work (no investigation and fault determination). Generally Collision is what it says on the tin, any time you hit something or something hits you (other than animals), and Comprehensive is pretty much everything else.
But lots of people don’t bother with the majority of Comp claims outside of windshields {and regions where hail damage is critical, but COMP costs in those areas tend to much higher). It’s often superficial damage and the DED eats up most of the ‘value’ of the claim.
COLL is almost always emotionally fraught as well as expensive in repairs and investigation, with corresponding cost. Considering the above, when I was an agent, I spent a lot of time suggesting customers with a typical 500/500 comp/coll DED consider a lower Comp ded. It was normally cheap, and you’d end up making the $$$ back with a single windshield claim.
