Can increasing your deductible save you money on car insurance?
Typically, the insurance provider may potentially offer a lowered insurance rate if you are willing to increase your deductible.
However, each provider is different and may have varying policies when it comes to factoring deductibles into your insurance policy, so it would be best to speak with your insurer to verify.
What is a car insurance deductible, and how does it work?
A car insurance deductible is your portion of the financial responsibility you will need to pay, out of your pocket, after you have been involved in a covered auto accident. To learn how much your deductible is, pull out your auto insurance policy, and go to the declarations page.
There, your deductible, along with the insurance coverage you selected, will be displayed.
Say that you have made a claim against your insurance policy, once you pay your deductible, your insurance company will reimburse you for the remaining repair costs up to the policy limits.
Let’s say you file a claim for a car crash you were involved in, and your auto insurance deductible is $1,000.
The claims adjuster will assess the damages to your car and see which repairs are covered by your policy. They will then check your deductible, which is $1,000. If you pay the deductible up front, the insurance company will reimburse you for the total amount of the covered damages.
However, if you don’t pay the deductible, the insurance company will likely subtract that amount from your claims check before sending it to you.
It’s important to note that not all insurance companies follow this process, and some may hold your claims check until you pay the deductible.
Therefore, don’t assume that carrying a high deductible means the insurance company will automatically deduct it from your claims check, and you will never be on the hook to pay it first.
Why does having a higher deductible lower your insurance costs?
Think of deductibles like a teeter-totter. On one side, you have risk, and on the other side, you have financial responsibility. When your deductible is low, that’s a high risk for the insurance company because they are assuming more financial responsibility.
But when the teeter-totter is leaning the other way, and the policyholder has a high deductible, the policyholder is assuming more financial responsibility, and the insurance company is taking on a bit less risk.
To make this even more simple, the more money you pay out of your pocket for your deductible, the lower your monthly premium will be.
The less you pay for your deductible, the higher your monthly premium will be.
Insurance companies have no problem offering you a lower auto insurance premium when you take a higher deductible. But, if you go with a lower deductible, you are putting more risk on their plate, and they will charge you more on your monthly premium.
How much can you save by increasing your car insurance deductible?
The savings you could earn by increasing your car insurance deductible can vary greatly based on several factors, such as:
- The insurance provider
- The coverage options you choose
- The specific details of your policy
- The state you live in
However, the national average of savings that can be had from changing your deductible can be anywhere from 7% to 28%.
If you want a more accurate depiction of what you could save by changing your deductible, the best method is to contact your insurance provider and request a quote of car insurance rates with them.
They will look at your insurance policy, your driving history, and other factors to give you an exact amount of savings to help you make an informed decision that best suits you.
Is it better to have a $500 or $1000 deductible?
There isn’t a clear-cut answer to this question. As we’ve mentioned before, individual circumstances determine which deductible option is best for you.
If you decide on a higher deductible, such as $1,000, you could enjoy a lower insurance premium. However, if you get into an accident, you will need to have that $1,000 on hand to pay the insurance company before they pay for the rest of your covered auto accident.
If you know that forking out $1000 for an auto accident to have the rest of your repairs covered is not possible for you, you might want to decide on a lower deductible.
Additionally, if you’ve only been in one car accident, or none at all, an insurance carrier would consider you to be a safe driver. If this is you, the probability of you getting into an accident would be less based on your past safe driving habits. Thus, choosing a $1,000 deductible or higher might not be that high a risk for you to consider.
However, if you know you are a driver that has been in multiple auto accidents or traffic violations, it may be better for you to choose a lower deductible. Drivers who get into lots of accidents are also drivers who tend to file a lot of auto insurance claims.
So, you really must look at your overall situation from top to bottom before deciding on which deductible to move forward with.
What factors should you consider when choosing a car insurance deductible?
There are many variables to consider when choosing which deductible to select. Here are the main ones that will help you make an informed decision:
Could you afford a higher deductible in the case of an incident?
Look at your finances and determine what you can comfortably pay for an unexpected auto expense. Consider factors such as:
- Your savings
- Emergency funds
- Financial stability
- Job security
How risk averse are you?
Decide how much financial responsibility you believe is worth taking on to lower your car insurance. Some policyholders enjoy the security with a lower deductible, even if they pay higher monthly premiums.
However, if you are not comfortable after reviewing all your factors on choosing a higher deductible, even with the savings, this might not be the best option for you. In the end, you should feel good about your deductible selection decision.
How’s your driving record?
Your past driving history plays a major factor. If you are an auto driver in multiple accidents, it might not be best to go with a $1000 or more deductible. It might be more financially feasible to have a lower deductible.
This will allow you to afford the deductible and get your auto repaired more frequently. Just remember to be cautious about filing too many claims. This can impact your insurance standing, and your auto carrier could drop you, putting you in a bad spot and scrambling for new coverage.
Getting new coverage with another carrier will be much harder once you are dropped from a carrier because you filed too many claims.
Carriers often share the same claims reporting system. They can run checks on you and learn why you were dropped from your last company, thus, deciding not to offer you a new policy with them.
Conversely, if you tend to practice defensive driving or have never been in auto accident or maybe just one, going with a $1000 deductible or higher might be a good idea, as you could save hundreds of dollars. But even then, you still should consider all the variables above and below before deciding.
What is the value of your vehicle?
Do you know the value of your car? If you don’t, this is something you are going to want to research as well. If your car still holds a significant market value, you will want to protect that investment, usually in the form of a lower deductible.
However, if your car is not valuable anymore and your research shows that the market value is low, it might be better to switch your car insurance policy to liability coverage to save money.
What is the Age of Your Vehicle?
If your car is not very old and is still worth a lot in the marketplace, you might want to protect that investment with a lower deductible, such as a $100 to $500. Because if a car such as this one were to get into an auto accident with its market value being on the higher end, this vehicle sounds like it’s worth getting fixed. Carrying a $100 to $500 deductible might make it easy to get this car fixed and fast.
On the other hand, if your car is over 20 years old and does not hold much market value anymore, it may be best to switch your car insurance policy to liability coverage.
Are you leasing or financing your car?
Is your car leased, or did you take out any other special financing options for it? This will also play a major role in deciding which deductible you should go for.
It could already be written in your leasing contract that you must carry a $500 or $1,000 deductible. The best option here is to locate your lease or other finance agreement and read it over.
Make sure you understand it, and make sure you understand if you even have the ability to change your deductible.
You’d hate to switch your deductible or make any other policy changes and then have an auto accident, only to discover that you unknowingly violated your agreement, and now your accident is only partially covered or not covered at all.
If you do not understand the lease, you can contact your insurance provider. They will be able to go over the policy agreement with you and let you know your deductible options or if you have any.
What is the payback?
This is a term that is connected to the amount of money you can save, over time, by carrying a larger deductible. If you’re a safe driver, and you decide to carry a $1000 deductible, and for the life of that policy, you never get into an accident, you will have saved thousands of dollars in the long run. This is the payback.
Can you mix and match insurance deductibles?
The short answer is yes. Some carriers allow policyholders to mix and match their deductibles.
For example, It is not far-fetched for a policyholder to have a $100-$500 deductible for comprehensive coverage but have a $1000 deductible or higher for collision.
If your carrier allows flexibility such as this, this can also be an alternative option to save money with deductibles.
Is it better financially to have a low deductible and a higher premium?
It all depends. If you believe you are going to file lots of auto insurance claims, a lower deductible would be better in that situation.
If you believe you aren’t going to file any claims at all, reaping the savings from a higher deductible could be a better decision in your situation.
What’s the downside of a high deductible?
The downside of selecting a higher deductible would be that you can’t afford to pay it when you have an auto accident.
If you were experiencing financial hardship and were banking on never getting into an auto accident, but you ended up having one, being unable to get your auto fixed and back on the road would be the worst possible outcome.
Not ready to raise your deductible? SteadyDrive can help.
If you’re not ready to increase your deductible but still want to find alternative ways to save on car insurance, consider exploring options such as SteadyDrive.
SteadyDrive offers a free mobile app to help drivers find affordable coverage and potentially reduce premiums without changing their deductible amounts right away.
Using technology, data analysis, and personalized insights, SteadyDrive can help safe drivers find a policy where they could save up to hundred of dollars a year.
RELATED: How SteadyDrive Can Save You Money
Understanding how deductibles affect your car insurance is important for making smart decisions about your coverage.
To choose the right deductible, consider these factors:
- Your financial situation
- Risk tolerance
- Driving record
- Vehicle value
- Age of vehicle
- Your lease/financing agreements
If you’d like assistance choosing your deductible, consult with insurance professionals who can provide personalized advice based on your situation.Their expertise will help you find the right deductible that balances premiums and out-of-pocket expenses, ensuring you have the right level of financial protection.
SteadyDrive is not an insurer or an insurance agent or broker. SteadyDrive does not provide you with an insurance policy, so make sure that you have insurance coverage while you drive. Please contact your insurer or an insurance agent or broker (if applicable) directly regarding questions you may have pertaining to auto insurance coverage. For more details, see SteadyDrive’s Terms of Service.
Ready to lower your rates?