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Disappearing deductible: is this auto insurance endorsement worth it?

Jan. 17, 2023
5 mins
Vanishing bridge

This article has been updated from a previous version.

An auto insurance deductible is the amount you need to pay out of pocket when you file a claim. For instance, if you have a $500 deductible and the cost of repairs is $5,000, you pay the first $500 and the insurance provider pays the rest.

The amount you choose to set your deductible at affects your insurance premium. The higher your deductible, the lower your premium will be, since you’re agreeing to take on a larger share of the claim costs. You can compare different deductible amounts to see how they affect your car insurance rate.

Auto insurance providers are always looking for new ways to retain customers. And one way they do this is by offering the safe drivers a disappearing deductible.

What is a disappearing deductible?

A disappearing deductible (sometimes called a vanishing or declining deductible) is an endorsement that can be added to your insurance policy. While there are insurance providers that offer disappearing deductibles for safe drivers, they don’t specify what their requirements are, so you should contact them or your insurance broker to find out if you qualify.

Once you qualify, here’s how a disappearing deductible works. The amount of your deductible declines every year you don’t file a claim, and it disappears altogether after a certain period of time. For example, if your deductible is $500 and it declines by 20% a year, it will fall to $400 after your first year of not filing a claim. It will then fall to $300 in the second year and continue falling every year until it reaches $0 as long as you don’t file a claim. If you do file a claim when the deductible is $0, then there are no out-of-pocket costs.

However, one point to note is that not every insurance provider offers disappearing deductibles.

Which insurance companies offer a disappearing deductible?

Allstate, Aviva, and TD are among the companies that offer this endorsement for vehicles. These insurance providers don’t specify if there are any provincial restrictions to this endorsement.

In the United States, some insurance companies will put a portion of your monthly premium into a savings account. Once that savings account reaches the amount of your deductible, then your deductible disappears. However, the aforementioned Canadian insurance providers that offer a disappearing deductible endorsement don’t offer this feature.

With Allstate, if there are no claims during the term, the deductible is automatically reduced by $100 for a 12-month policy term or $50 for a 6-month policy term to a minimum of $0 when the insurance policy renews. A disappearing deductible endorsement is not available for motorcycles or recreational vehicles. Allstate doesn’t specify whether there’s a cost for this endorsement.

Keep in mind that even if you have accident forgiveness coverage, it won’t protect your disappearing deductible from reverting to its original amount.

With Aviva, your deductible is reduced by 20% each year if you don’t file a claim. If you don’t file a claim for five consecutive years, your deductible disappears completely. However, you may need to pay for this endorsement if you’re a new customer, as some existing customers may already have this endorsement embedded in their current policy.

With TD, your deductible will fall by 10% each year you don’t file a claim and falls to $0 after 10 years of safe driving. This is only available to customers who carry collision coverage or all perils coverage with deductibles of $500 or less. However, this endorsement is free.

If you file a claim during your term, your deductible will return to its original amount when your policy renews. TD notes that glass breakage of $200 or less, a hit and run, or a not-at-fault collision won’t be considered as a claim.

However, the other two insurance providers don’t specify what isn’t considered a claim, so it’s best to check with them or your broker.

The pros and cons of a disappearing deductible

There are advantages of having a disappearing deductible. First, your deductible will be automatically lowered every six months or every year that you don’t file a claim. And second, the deductible could be as low as $0 if you do have an at-fault collision.

But there are also disadvantages to this endorsement. First, not every insurance provider offers it. And second, for the insurance companies that do offer a disappearing deductible, not everyone qualifies. If you haven’t been involved in any collisions and have a clean driving record, you should be able to get a disappearing deductible.

Finally, there’s the cost. Not all insurance providers offer this endorsement for free so you may have to decide whether it’s worth the extra cost.

For example, let’s assume your insurance policy has a deductible of $500, you pay $50 a year for a disappearing deductible endorsement, and with the endorsement, your deductible declines by 20% each year that you don’t file a claim. After 10 years of being claims-free, the cost of this endorsement is no longer worth it because you’ve already paid the same amount as your original deductible.

Another thing to consider is the cost of having a disappearing deductible. For instance, if you can only get this endorsement with a policy that has a deductible of $500, your insurance premium will typically be higher than a policy with a larger deductible. In the long run, you may end up paying more to get a policy with a disappearing deductible than without. So, while a disappearing deductible sounds good in theory, it might not be worth the extra cost if you must pay a higher premium and you’re already a safe driver.

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Craig Sebastiano

Craig Sebastiano is an award-winning writer and editor with more than a decade of experience in journalism, marketing, and communications. He’s written about a number of financial topics, including investing, real estate, robo-advisors, mortgages, credit cards, pensions, taxes, insurance, RRSPs, and TFSAs. Craig’s work has appeared in MoneySense, Morningstar, Benefits Canada, Advisor’s Edge, Job Postings, and Ryerson University Magazine. He has completed the Canadian Securities Course and is an avid do-it-yourself investor.

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