A vanishing deductible is a car insurance program where safe drivers pay a recurring fee in exchange for lower deductibles in the event of an accident. The longer a driver goes without a claim, the lower the deductible can go. In some cases, drivers might enjoy a deductible of $0. Several car insurance companies offer this type of feature, including 3 of the 10 largest auto insurers nationally. But vanishing deductibles are most commonly associated with Nationwide Mutual Insurance Company, and for good reason. Nationwide trademarked the term “Vanishing Deductible” in 2010.
A couple of notable copycat programs include The Hartford’s Disappearing Deductible and Allstate’s Deductible Rewards. Perhaps the biggest competition for this type of program, however, is good old-fashioned budgeting and saving. Drivers can simply save the money they would be paying in fees in order to easily meet their normal car insurance deductible in the event of an accident.
How Does Vanishing Deductible Car Insurance Work?
Vanishing Deductible from Nationwide and similar deductible-reduction programs from other companies reward drivers for not making claims. The longer you’re claim-free, the more you stand to save. These programs are not free to participate in. Prices and rules vary by company, but they all operate in the same basic fashion:
- You inform your car insurance carrier that you’d like to participate in the program.
- You pay a recurring fee on top of your regular insurance premiums to participate. It could be monthly, quarterly, etc.
- After a certain period of claim-free, accident-free driving (one year, five years, etc.), your deductible drops a certain amount—for example, $50 or $100.
- The deductible continues to drop by regular increments as long as a claim is not filed on your policy. In some states, the deductible could stay at a capped low rate, or disappear altogether.
- If a claim is filed, the deductible usually resets to the amount it was when you started the program.
What’s the Catch?
There are several caveats to keep in mind when choosing to enroll in a vanishing deductible insurance program. First, you might not be eligible if you’ve recently filed a claim – in the last 3 years, for example. And even if this type of program is available to you, there’s some important fine print to keep in mind.
Caps on How Much You Can Save. Most companies cap the extent to which your deductible can “vanish.” For example, Nationwide’s Vanishing Deductible customers will never see more than a $500 reduction on their deductible, no matter how long they pay the enrollment fee or go accident-free. Allstate’s Deductible Rewards program has the same limit.
You Can’t Predict or Control Damage. You can drive carefully to avoid an accident, but that doesn’t protect you from all misfortune. Something beyond your control, such as vandalism or weather-related damage, could still force the need to file a claim. That would cause your future savings to vanish by returning your deductible to normal.
Different Pricing Structures. Some companies charge per car to enroll in the program. In Nationwide’s offer, a single vehicle can join the program for $60 per year, and each additional car may be added for an extra $10 per year.
State Law Restrictions: Laws in Pennsylvania and New York prohibit companies from offering a $0 deductible.
Ultimately, consider your driving habits, accident record, and willingness to bet on the safety of your car where you park and drive it. In addition, remember that a vanishing deductible is not the same as a vanishing premium (taking funds from an accrued life insurance policy to meet premiums instead of paying for them out of pocket).
It’s a good idea to ask your insurance agent about whether or not you’re a good fit for car insurance with a vanishing deductible. It’s an even better one to crunch the numbers yourself to see whether paying a recurring fee for a potentially capped discount is worth it.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.