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Insurance while driving is one of these legal mandates that makes common sense. It all comes down to a question of financial responsibility. Most of our law is based on the idea you should always pay to put right whatever you do wrong. So if you are careless and damage the property of a friend while visiting, you are expected to pick up the bill for its repair or replacement. It could be just a few dollars when you knock over a bottle of beer. It might be more serious if you break an expensive vase. Either way, as a guest in someone’s home, you would usually feel honor-bound to make good on the loss.

Now put yourself behind the wheel of a vehicle. You mess up, coming round a bend too fast and fail to stop in time, crashing into the rear of a truck carrying expensive vases. The law says you should always be carrying a minimum amount of cover to pay for the damage you cause. In this, the lawmakers are reasonably generous. They know not everyone holds cash in a bank to cover these losses, so they make insurance mandatory. If the minimum is not enough, you are still liable to pay the difference. Should you have assets or a reasonably good pay check coming in each month, you could find yourself on the wrong end of a law suit.

So this should make you ask two different questions. First, how much insurance cover should you buy? The answer to this, like all good legal questions, is “it depends”. If you have no assets and earn very little, it’s uneconomic for anyone to sue you, so you might take the practical view that the minimum is enough. But if you have a good job and you are doing well enough to have positive housing equity, it’s worth carrying a lot more than the minimum to protect your home and any other assets.

The second question is how big a deductible you should accept. The insurance company tempts you into accepting up to $1,000 of any claims by giving you a discount. In these hard economic times, it can look a good deal to accept the maximum deductible. It takes some of the pressure off the family budget when the premium rate comes down. But let’s say you agree to pay the first $1,000 of any claim, can you afford it? Remember life is not always fair. In the accident, you damage your own vehicle. You are looking at the bill to repair it, plus the $1,000 on the deductible. Can your credit cards soak up all this as a lump sum? When you add in the interest payments on this extra borrowing, which was the better deal? Paying a few dollar a month more on the insurance policy, or hitting your credit cards with all this grief?

In the right circumstances, buying an auto insurance policy with the maximum deductible can be the right decision. Indeed, with cash so tight, it may be the only way you can afford it. But always remember to look at the worst case scenarios. Like there never could be two accidents in the same year, right? Buying auto insurance is all about taking on the risks you can manage.

Lets start off with a simple explanation of how insurance works. In the good old days before those kind men got together in the Lloyds coffee shop, people were responsible for their own losses. If the horse pulled their cart into a ditch and this broke the wheel, the owner had to put his hands into his pock’ets (which fortunately had already been invented) and pay someone to repair the wheel. But once people could share the risks, life was suddenly better. If you gather together a big enough group of cart owners, each will only have to pay a small amount into the central fund to cover the losses of the few who have accidents. Those men at Lloyds were on to a winning business formula. Moving into modern times, the idea of spreading the risk is the same and, with thousands of people in each group, the cost of loss is divided into small premiums. But, with profits under pressure, the insurance companies came up with a new variation on the old theme. Suppose they could persuade their customers to accept the risk of some of their losses. This would then become self-insurance for part of the risk. The rest would be paid by the insurance companies. So the deductible was born. You agree to pay the first portion of any loss. In the case of traffic accidents, most of the fender benders are minor and don’t cost much to repair.

That means you pay for most of the repairs yourself and the insurance companies get richer. Ironically, if no-one opted for the deductible, the increase in the premium for everyone in the group would be trivial. So let’s get to an actual example to see how it works. If you agree to accept a deductible of $1,000, you will be given a discount on the premium. Say you save 10% over the year. Now that’s a good saving if you manage to get through the year without having an accident. But suppose your luck is not good and you have an accident. The bill for repairs is $900. You put your hand in your pocket (pockets are such useful things – always seeming to have money in them) and pull out the dollars. Was your 10% saving over the year more than $900? If not, you are making a loss, not just on the insurance policy but, if you had to use your credit card, on the interest added to the $900 until it is paid off. What would happen if your run of bad luck continued and you had a second accident in the year?

Do you have another $1,000 as savings or available to borrow? Perhaps we should not be so pessimistic. Worst case scenarios are always better applied to other people and never to you. The higher the deductible you accept, the more of the risk you are accepting. Cheap car insurance is a wonderful thing to have so long as your luck holds up. But if your luck fails, the maximum deductible is going to empty that magic pocket of yours. And here’s the thing – you can be the safest driver in the world, always super careful, always following all the rules, and then you meet a dork behind the wheel of another vehicle and suddenly you’re wrapped round a tree. So look for cheap auto insurance, but always look at your cash position and ask yourself how well you would cope if the worst happened. Deductibles are good for people with a margin of financial safety.

When you start off on your tour of the internet, one thing becomes clear almost immediately. If you use the free online search engines, you can get a flood of quotes into your inbox. All the major auto insurers are tied into one or more of the search engines and they all respond to searches with their quotes. This buries you under a mountain of information. There just is not enough time to follow up every quote on every changed variable. Assuming, of course, that you got quotes using different factors, e.g. changing the amount of the deductible, how many miles a year you drive, and so on. The only way you can work out how to get the maximum discounts is to play with the system. So, if you are starting the process of finding a new vehicle to drive, first check out the premium rates on all the makes and models you are thinking about buying. You will be surprised by big the differences are. Then look at payment methods for the insurance. There are discounts available if you pay the premium as an annual lump sum. Should you bundle the auto with the home insurance.

This can save at least 10%. Insure more than one vehicle? There are so many options giving you a discount, you need to work your way through multiple searches to understand how much money can be saved. Talk to your friends and there is likely to be one suggestion they all make. Go for the maximum deductible. This gives you the biggest single discount. OK. So they are advising you to self-insure. Instead of looking to the insurance company to pay all your claims, big or small, you are signing up to a deal where the insurer only pays the big claims and you pay all the small claims. Look back over your driving career and talk to your family and trusted friends. Find out how many accidents they have had and roughly how much damage was caused.

If you find the majority of the accidents caused minor damage and no serious injuries, you are paying all those claims out of your own pocket. The reason why you get a big discount if you accept a big deductible is you end up paying most of the claims. The insurer only pays for the exceptional accident. Let’s see how this might work. If you are unlucky, you might be involved in two minor accidents in one year. Suppose you have a deductible of $1,500. Can you afford up to $3,000 out of your family budget? If you have cash in your bank account, slack on your credit cards, or assets you can sell, you can ride out this hit. But if you have no margin of safety in your family finances, this $3,000 might tip you over the edge on other commitments. Losing $3,000 might mean a default on your mortgage or missing payments on your credit cards with a flock of penalty charges settling like vultures around you. But if you have luck on your side, accepting the maximum deductible is the fastest way to buy cheap auto insurance. The wise driver puts some of the money saved to one side just in case a traffic accident does come.

Choosing a deductible for your auto insurance quote might seem like an easy task, but it is actually a very big decision that should not be taken lightly-especially since your deductible has a big effect on the premium you are charged and because you must have enough money in the bank to cover it, should you have an insurable incident. A deductible is the amount of money that you need to pay out of pocket toward damages on your vehicle if you suffer an insurable event like an accident or car theft. Deductibles are only paid when you have damage that is covered by your insurance policy-otherwise, all damages will come out of your pocket or that of the person responsible for causing the accident. Because a deductible must be paid out of your own, personal funds, it is important that you choose a deductible that you can actually afford to pay.

Otherwise, you might end up with a deductible that hurts your savings, results in additional debt and prevents you from being able to get your car in working order. Without a car in working order you could suffer other financial difficulties such as the loss of a job. It is tempting to choose a high deductible when shopping for an auto insurance quote because the higher your deductible is, the lower your auto insurance premium will be. Since accidents don’t happen to most people very often, it can seem like a real waste to pay for a high premium each and every month.

But as tempting as that might be, ask yourself this-does it really matter? If you have a cheap auto insurance premium every month but you can’t afford the deductible, then you are switching one difficulty for another. Instead, choose a deductible you can afford-one as high as you can afford-and then enjoy the resulting premium. That way, you will take advantage of as cheap a premium as you can get, you will have the comfort of knowing that you can afford your deductible if something should happen, and you won’t feel as though you are throwing away money on a policy that is not providing as much benefit as you need.