Should I Choose a Higher or Lower Auto Insurance Deductible?

What is a Car Insurance Deductible?

A car insurance deductible is an amount of money you are required to pay out of pocket when you make a claim with your auto insurance company. The deductible is the portion of the claim that you are responsible for paying, and it is typically stated on your policy. Generally, you can choose from a range of deductible amounts, usually ranging from $250 to $1,000 or more, depending on the coverage type and other factors. Choosing a higher deductible will usually result in lower monthly payments, however, you will need to pay more out of pocket for a covered loss.

How Does a Deductible Work?

Step 1: A deductible is the amount you pay out of pocket when you make a claim.

Step 2: Deductibles are usually a specific dollar amount, but they can also be a percentage of the total amount of insurance on the policy.

Step 3: For example, if you have a deductible of $1,000 and you have an auto accident that costs $4,000 to repair your car, you will have to pay $1,000 out of pocket as your deductible, and then your insurance would cover the additional $3,000 (or up to your coverage limit).

Step 4: Your insurance company would then likely send you a check for the amount of the claim minus your deductible.

Step 5: Deductibles are used as a way to share the risk between the policyholder and the insurance company. If you weren’t required to have a deductible, you could technically have as many accidents as you wanted on the insurance company’s dime.

6 Steps to Choosing a Deductible

1. Choose a High or Low Deductible

When it comes to choosing a car insurance deductible, it’s important to make an informed decision. Here are six steps to help find the balance between a high and low deductible:

1. Consider the amount you want to be responsible to pay out of pocket in the event of a claim.

2. Weigh the monthly costs associated with a low deductible policy versus the potential cost of a high deductible policy.

3. Consider your risk tolerance. Are you comfortable taking a risk you won’t need to file a claim?

4. Think about your current financial situation. Do you have enough savings to cover a large unexpected bill if you have a high deductible policy?

5. Decide if you are more likely to have a car accident or file a claim.

6. Compare rates and coverage options on KBB.com to see if you can save on car insurance.

Ultimately, a higher deductible is a higher risk. The lower your deductible, the more coverage and security you have. How much are you and your family willing to risk?

2. Calculate the Cost Difference

Step 1: Get quotes from different car insurance companies comparing different deductible amounts. For example, compare what the policy costs with a $500 deductible against the same policy with a $1,000 deductible.

Step 2: Check for any diminishing returns, meaning that if the cost of the policy with a $2,500 deductible is only slightly lower than the policy with a $1,000 deductible, then the savings may not be worth it to choose the higher deductible.

Step 3: Consider the value of your vehicle when choosing the deductible amount. If the vehicle is older and doesn’t cost much to repair, then a higher deductible might be a better option. Conversely, if the vehicle is newer and parts are more expensive to replace, then a lower deductible might be preferable.

Step 4: Calculate the difference in price between plans with high and low deductibles. This will give you an idea of the total cost of the policy.

Step 5: Consider whether you will be filing a claim, as that could affect your total cost. Knowing how much you can afford to pay out of pocket if you do file a claim can help you decide which deductible is right for you.

3. Are You Likely to File a Claim?

Step 1: Identify any accidents on your driving record, as well as any high-risk behaviors such as speeding or rush-hour driving.

Step 2: Consider the roads you drive on and the city you live in. If you live in an area with high theft rates or you drive in busy areas often, you are more likely to file a claim.

Step 3: Ask yourself if you are someone who tends to file claims often. Consider the number of accidents you have on your record and if you drive in high-risk areas.

Step 4: Carefully think about the deductible you choose. The deductible should be an amount you can afford to pay if you end up needing to file a claim.

Step 5: Consider the total cost of your insurance. A low-deductible plan can be more expensive over time if you are more prone to filing claims, while a higher deductible plan could save you money if you are less likely to file a claim.

4. Determine the Value of Your Car

Step 1: Consult with auto dealers or banks to understand the worth of your car.

Step 2: Visit Kelley’s Blue Book website (www.kbb.com) to see the estimated value of your car.

Step 3: Check your car’s safety record at the Insurance Institute for Highway Safety (www.iihs.org) website.

Step 4: Calculate how much your car is worth.

Step 5: Compare the value of your car to the cost of your insurance policy.

Step 6: Consider the value of your car and the cost of potential repairs before deciding on your deductible.

5. Evaluate Your Cash Savings

To evaluate the savings you get from choosing a deductible, you need to run the numbers on your monthly premium. Consider the following six steps to find out which deductible amount is best for you:

1. Examine your emergency fund. Choose a higher deductible if you have enough money in your emergency fund to cover it. Otherwise, opt for a lower deductible.

2. Calculate the repair costs. Imagine what would happen if you get into a collision and your car requires $2,000 of repairs with a $1000 deductible. Do you have enough money to pay the deductible right now?

3. Run the numbers. Compare the cost of premiums with different deductibles to determine which one will save you money in the long run.

4. Speak with an insurance broker or agent. Ask them to help you calculate a few scenarios and pick the right deductible and auto policy.

5. Drop collision and comprehensive coverage. If your car is worth less than 10 times the premium, purchasing the coverage may not be cost effective.

6. Review your coverage. At renewal time, make sure your insurance needs haven’t changed.

6. What’s Your Tolerance for Risk?

When selecting a car insurance deductible, it’s important to consider your risk tolerance. A lower deductible means you’ll pay more in premiums, but you’ll also have more coverage and security. On the other hand, a higher deductible may mean lower premiums, but also more financial risk. Depending on your circumstances, you might be more likely to file a claim if you have accidents on your record, drive on busy roads, or live in a city with high crime rates. Before making your decision, consider the likelihood of having to pay your deductible, and ask yourself whether you are comfortable taking on the risk of higher deductibles or if it makes you feel uneasy. Ultimately, the best deductible will depend on the financial means and risk tolerance of you and your family.

What Factors Should You Consider When Choosing a Deductible?

1. Could you afford a higher deductible in the case of an incident?

When considering whether or not to raise your vehicle insurance deductible, you should ask yourself if you could afford to pay a high deductible in the case of an incident. Evaluate if you have the financial means to cover the deductible as well as your current state of emergency funds before committing to a higher deductible. If you have the financial means and a strong emergency fund, then increasing your deductible could help you unlock some savings; however, if you are already experiencing financial difficulty, it may not be worth the risk.

2. What is the payback?

Choosing a deductible when it comes to auto insurance can be a tricky decision. On one hand, a lower deductible offers more coverage, but it comes with a higher premium. On the other hand, a higher deductible offers a lower premium, but you have to pay more out of pocket when you have to file a claim.

When it comes to the payback of a deductible, the lower your deductible is, the higher your premium will be. The higher the deductible, the lower the premium. However, if you don’t have an emergency fund and can’t come up with the cash for repairs right away, you may prefer the peace of mind of a lower deductible. Additionally, filing a claim could lead to an increase in your rates for up to five years, depending on the circumstances, state, insurer, cost, and other claims.

So, when considering a deductible, it’s important to do the math and calculate the premium versus the deductible. You should also consider how much you can afford to pay out of pocket if you have to file a claim, as well as whether or not you have an emergency fund to cover the cost. Ultimately, the right decision comes down to balancing the risk of a higher deductible with the long-term savings from a lower premium.

3. How often do you have accidents?

How often do you have accidents? Statistics show that drivers with more accidents on their record tend to file more claims than the average driver. Other factors, such as driving on busy roads, living in a city with high crime rates, and choosing a deductible that isn’t too high can also affect the likelihood of filing a claim.

4. How risk averse are you?

When choosing a automobile insurance deductible, it’s important to consider how risk averse you are. Are you comfortable taking on some financial risk or does this prospect make you uncomfortable? If you have the financial means to pay the higher deductible if needed, then it might be the right choice for you. On the other hand, if you are the type of person who worries about the “what ifs” in life, then you might want to opt for a lower deductible in order to have more coverage and security. Additionally, if you have a lot of accidents on your record, drive on busy roads, or live in a city with high crime rates, then you should also consider a lower deductible because you may be more likely to file a claim. Ultimately, it comes down to how much you and your family are willing to risk and whether you can afford the higher deductible if needed.

5. What is the value of your vehicle?

When it comes to choosing your insurance deductible, the value of your vehicle is a key factor to consider. If your car is worth less than $3,000, it may not be worth carrying optional coverages like comprehensive and collision. However, if your car is a necessary means of transportation, the cost of repairs may be worth it.

On the other hand, if your car is worth more than $3,000, it may make sense to carry comprehensive and collision coverage, and choose a lower deductible so you don’t have to pay for repairs out of pocket. It is also important to keep in mind that most insurance companies will only pay up to the actual cash value of your vehicle if it is totaled in an accident.

To determine the best deductible for your vehicle, you will want to calculate its value and compare it to the policy cost. You may also want to look into discounts for features that reduce the risk of theft or injury. Ultimately, low deductibles are better for cheaper cars and high deductibles are better for more expensive cars.

6. Are you leasing or financing your car?

Are you leasing or financing your car? If so, you should consider choosing a lower deductible option when it comes to your car insurance. This is because you are responsible for returning the car in working condition regardless of the situation, and this will provide you with better coverage in the event of a claim. On the other hand, if you own your car outright, you may want to opt for a higher deductible in order to save on your car insurance premiums. It is important to research the auto insurance costs for any new or used car you are thinking about buying, as premiums are based on the car’s price, repair costs, safety record, and theft likelihood. Make sure to take advantage of any discounts offered for safety features that reduce the risk of injury or theft.

7. Can you mix and match deductibles?

Yes, you can mix and match deductibles depending on the type of coverage. For example, you may choose to have a higher deductible for collision and a lower deductible for glass breakage. This enables you to reduce the cost of coverage while still providing sufficient protection from incidents that may occur. It is important to assess your own risk and cost concerns when making these decisions.