What Is a Diminishing Deductible?

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Are you a safe driver looking for ways to save on insurance costs? Have you heard of a diminishing deductible? While it may not assist with up-front insurance costs, in the instance of an unfortunate accident, it can help save you money you would have otherwise spent on your deductible. Some insurance companies charge for this feature, while others offer it as a perk.

What is a diminishing deductible?

A diminishing deductible is an optional feature on your car insurance policy. Not all insurance companies offer this add-on, so if it’s something you’re interested in you should inquire before signing on.

How does a diminishing deductible work?

The safer you drive, the better the chances you will benefit from a diminishing deductible. The feature is designed to award you for a safe and accident-free driving record.
For example, let’s say your deductible is $500. If you add this feature, your deductible may reduce by $100 per year without a claim or accident. After the first year, your deductible would reduce to $400, next year $300 and so forth until your deductible is $0.

What happens when your deductible reaches zero?

Depending on your insurance company, you may begin to accrue credits. Let’s imagine you are in an accident two years after your deductible has reached zero. Some insurance companies will allow you to accrue deductible credits. This means your deductible will remain at zero because you have two years of credit and you’ve only used one to cover this incident. Bear in mind, not all insurance companies offer credits and your deductible may reset to the original amount after only one accident.

How does a diminishing deductible reduce your out-of-pocket expenses?

Two years into your insurance policy, you have been accident free and your deductible has been reduced to $300. Unfortunately, you have an accident and the cost of repairs is $1,000. Previously, you would have had to pay $500 of the expense due to your deductible. Since you have earned $200 off for safe driving, you only have to pay a deductible of $300 in this case. However, your deductible will now increase and you will have to work your way down again by staying accident free.

What to consider before opting for a diminishing deductible feature

Before paying for an add-on, you should check with your insurance company if any of its auto insurance policies offer it as an included feature. Then you can get a clearer picture of the whole package and its worth to you.
Another thing to keep in mind is if you plan on paying for a diminishing deductible, it’s important to have a good driving record. If you have excessive claims for accidents and even traffic tickets, this add-on feature is not meant for you.
First off, you may not even be eligible for it. Some insurance companies will only allow you to add it if you have had three or more consecutive years of a clean driving record. Secondly, if you tend to have accidents, no matter how minor, you will never lower your deductible anyway and it would be a cost with no benefit.
Keep in mind that a diminishing deductible is applied to your whole car insurance policy. This means no matter how many drivers are on your policy, once one uses it, it resets for all. It may also reset to the original deductible amount if you make changes to your current policy.
Finally, some insurance policies require you to be ticket-free in addition to accident-free to earn credit towards your diminishing deductible. This means if you get a speeding ticket, your deductible may be reset to the original amount. Depending on the policy, the severity of the ticket may be taken into account. For example, a parking ticket may not have any effect, but a speeding ticket may have the same consequences as an accident.
In the end, you will have to decide if adding a diminishing deductible feature to your car insurance is worth the additional cost. Make sure you have a clear understanding of any restrictions and limitations. Perhaps you are one of the lucky ones and it is an add-on already included in your current coverage.

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