Wednesday’s Post 11/16/11 – This week the American Automobile Association released survey results  showing that a $2,000 car repair bill is now out of reach for at least a quarter of the total US population whom own a car.  A $1000.00 car repair bill did not fare much better. While releasing the results,  American Automobile Association vice president for automotive and financial services, said that the tough economic conditions faced by Americans are to blame for the increased negligence of car repair.  This exposes car owners to more costly repair bills. Is this change we can believe in?  Half of the total motorist population prefers staying with their older cars rather than incurring the expenditure of buying a new one. 25% of the population no longer do their own vehicle repair and maintenance.  Of those who can’t defray these repair costs, 13 % would use funds borrowed from family, friends, banks, retirement benefits or home equity to foot a $2,000 bill, while 20 percent indicated that they would pay the bill through a credit card and pay off the repair over time. Others would depend on personal savings were found to be 38 percent. For those who could pay a $1,000 repair bill, 22 percent would finance the bill via credit card, 46 percent would borrow from their savings and 16 percent would have to seek credit from other sources. State Farm, in an email, estimated the number of those who didn’t know how they would pay for either of the bills to be at four percent.

The survey results seem to confirm the research opinion that many motorists, mainly those owning older cars, are now neglecting comprehensive and collision insurance in favor of cost savings. However, those who still buy these policies request higher deductibles, according to Quality Planning in a study it released earlier in the year. Quality Planning is a firm dealing with verification of policyholder data for insurance companies. It is based at Seattle. Between 2006 and 2010, there was a 10 percent increase in older cars  not carrying  Auto Insurance comprehensive or Auto Insurance collision coverage. This number jumped from 53 percent in 2006 to 63 percent in 2010, Quality Planning reported. According to the company, this resulted in an annual out-of-pocket savings of $229 which, when broken down, stood at $19 monthly. In addition, vehicles with a low collision deductible of up to $250 declined at an annual rate of nine percent between 2006 and 2009. On the other hand, those with high deductibles of up to $1,000 increased in the same period from 1.6 percent to 4.9 percent. Although there is a general agreement that higher deductibles can significantly cut costs, industry analysts warn against choosing this option, as they see it as a gamble since it  would expose many motorists to the risk of having to pay for repairs out-of-pocket. They argue that higher deductibles greatly expose consumers to the possibility of having to settle all costs equal to the amount. 

Consumer advocates advise vehicle owners to consider both the risk of major costs in the long run as well as short-term savings when choosing automobile insurance. Repair costs for older vehicles, especially those that have been given poor maintenance services, can rise very quickly, although this largely depends on the kind of repair needed and the type of vehicle. AAA estimates that engine repairs could cost in excess of $5,000 while transmission repairs could range between $2,000 and $4,000. 

-Mike

Michael E. Dortch
President &  Managing Agent
InsureDirect.com
Corporate Home Office
618 South Broad Street
Lansdale, Pennsylvania  19446
(800) 807-0762  ext. 602