Diminishing Deductible Insurance Coverage - How it Really Works

Diminishing Deductible Insurance CoverageThere's a new trend in auto insurance, referred to as "vanishing deductible" or "disappearing deductible" coverage. Those companies advertising it make it seem like your deductible, the amount you pay out-of-pocket when you file an auto insurance claim, will completely disappear, but is that really how it works?

Right now, there are at least two big-name insurers offering insurance with diminishing deductibles. At The Hartford, you'll qualify if you have several years of accident free driving. For three years without an accident or moving violation (that includes speeding tickets) your deductible will be reduced by $50, whether the three-year accident-free record is with them, or with your previous insurance company (if you're a new customer). If you continue to maintain a clean driving record, your deductible will keep going down by $50/year. In theory, if you never have an accident or moving violation, you could end up with no deductible at all.

Nationwide's plan is similar. As their customer, if your record is clean, your deducible will be reduced by an initial $100, and then continue going down by another $100 for every year in which you have no moving violations or accidents, but the program has a cap. The maximum reduction in your deductible is $500.

Both of these options seem pretty good on the surface, but are they? Yes and no. While it's true that both these diminishing deductible products appear to save you money, the reality is that you have to pay money to get them. At Nationwide, the privilege of having their "vanishing deductible" will cost you $60/year for the first car on your policy and $10/year for every other car on your policy. This is a separate option from other policies and programs, and is offered to anyone who chooses to pay for it.

At The Hartford, there is no annual fee, but the "disappearing deductible" is only available to customers with their "Advantage Plus" coverage package, which includes accident forgiveness as well, but also costs five or six percent more than a policy with a normal deductible.

As well, there's the issue of what happens if your perfect driving record becomes…less than perfect. At The Hartford, one accident sets you back to your original deductible, even if the accident wasn't your fault. You'll then have to be accident-free for another three years before you'll qualify for the program again. At Nationwide, you'll revert back to your original deductible less the first $100.

So are these programs worth it? Whether you're getting your diminishing deductible insurance from Nationwide, The Hartford or anywhere else (most major insurers offer a similar program), you'll have to weigh your options. If your deductible has been reduced to zero, which could take ten years or longer, it may be worth a higher premium. If only $500 is reduced, for which you've paid about $300, it may still take ten years to break even.

The bottom line: when it comes to diminishing deductible auto insurance, your mileage may vary.