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Disappearing DeductibleWhen you purchase insurance (car insurance, home insurance, health insurance, boat insurance, motorcycle insurance, etc.) you choose a deductible to go along with that insurance. The deductible is the amount that you have to pay before the insurance kicks in. For example, if you have a $500 deductible on your car insurance policy, you must pay the first $500 worth of damage if you get into a car accident. If you get a dent in your car bumper and it only costs $300 to fix, you are responsible for the full amount when you have a $500 deductible. If you have door damage to your car that costs $1000 to repair, you would pay $500 and the insurance company would pay $500.
It seems obvious that you would want insurance with a very low deductible. The problem is that the lower the deductible you have, the higher the monthly cost for the insurance will be. Most people choose a deductible that is as high as possible while still remaining within what they could safely afford to pay if they were in an accident
A disappearing deductible (also called a vanishing deductible) is a way for insurance companies to reward their safe customers. By offering a disappearing deductible, it means that those who do not make an insurance claim for a year period get their deductible reduced for the next year, theoretically making the deductible disappear completely if the person makes no claims over a number of years. Insurance disappearing deductibles usually work in one of two ways:
Percentage: In this instance, for each year a person drives without making an insurance claim, their deductible is reduced by a set percentage which is commonly 25%. Using this example, the driver would have their deductible reduced to $0 if they made no insurance claims for four years in a row. For example, if a person had a $500 deductible and went two years without making a claim, then made a claim in the third year, that person would have to pay $250 (instead of the original $500). If the person went four years without making a claim, then made a claim in the fifth year, that person would have to pay $0 (instead of the original $500).
Dollar Amount: In this instance, for each year a person drives without making an insurance claim, their deductible is reduced by a set amount which is commonly $100. Using this example, the driver would have their deductible reduced to $0 if they made no insurance claims for five years in a row. For example, if a person had a $500 deductible and went two years without making a claim, then made a claim in the third year, that person would have to pay $300 (instead of the original $500). If the person went four years without making a claim, then made a claim in the fifth year, that person would have to pay $100 (instead of the original $500). If the person went five years without making a claim, then made a claim in the sixth year, that person would have to pay $0 (instead of the original $500).
Disappearing deductible may seems pretty straightforward, but as with everything associated with insurance, it's never quite as simple as it seems. The catch is that having disappearing deductible as part of your auto insurance policy will cost you more than not having it which can result in you paying more even if you're a good driver. It's important to understand the disappearing deductible catch.
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