How to Choose Your Car Insurance Deductible

Choosing the best car insurance deductible isn’t easy. However, choosing a deductible is one of the most important things to consider when comparing coverage.

A high-deductible car insurance policy brings very different financial consequences than a low-deductible one.

Read on to find out about choosing your car insurance deductible and questions to ask yourself before determining which one works best for you.

Car Insurance Deductible Explained

To begin, let’s cover the basics of what a car insurance deductible is.

If you file a car insurance claim after an incident, the deductible is the amount you pay out of pocket before your insurance carrier starts paying for repairs. Each time you file a claim, you have to pay the deductible amount.

For example, if you have a $3,000 repair and a $1,000 car insurance deductible, you would be responsible for $1,000 of the cost, and the insurance company would pay the remaining balance. If the repair costs less than the deductible amount, you’ll pay the entire bill.

Auto insurance deductible amounts can run anywhere from a few hundred dollars to $2,000, and the most popular option is a $500 deductible.

You’ll have a car insurance deductible for either collision or comprehensive insurance coverage. You could also have deductibles for uninsured/underinsured motorist coverage and personal injury coverage.

6 Questions to Ask Yourself When Choosing a Car Insurance Deductible

When selecting the best car insurance deductible, answer these six essential questions to find out which policy is best for you. These include your driving habits, finances and risk tolerance. After answering these questions, you’ll be able to choose the car insurance deductible that’s the best match for your needs.

1. Would You Rather Pay More Now to Avoid a Big Bill Later?

There is a fairly straightforward relationship between an insurance deductible amount and the rates you pay for your policy. Plans with low monthly premiums usually have high deductibles. Conversely, high monthly rates can mean low deductibles.

By understanding the relationship between these two numbers, you can start to get a picture of how high deductible plans can help you save money on monthly bills. But, you’re also assuming the risk of high car repair costs if you file a claim.

Low Deductible:Better if you want to avoid a large bill after filing a claim, but your monthly rates will be higher High Deductible:Better if you want lower monthly costs, but if you file a claim, you’ll pay more out of pocket

2. What’s the Actual Cost Difference for the Policies?

When comparing auto insurance policies, look at the hard numbers of both plans to get annual estimates for the total costs. Run these annual calculations under the scenarios of no insurance claims vs. one or two insurance claims.

How do the costs compare under each situation? Check your car insurance rates to calculate your costs, or ask your insurance agent for help.

In the hypothetical scenario below, the driver would save $1,116 per year if they had a high-deductible policy and didn’t file any claims. On the other hand, if the driver filed two claims that year, a low-deductible plan would save them $384 in total costs.

Low Deductible:$250 deductible plan for $182 per monthAnnual Cost with No Claims $2,184Annual Cost with 1 Claim: $2,434Annual Cost with 2 Claims: $2,684 High Deductible:$1,000 deductible plan for $89 per monthAnnual Cost with No Accidents: $1,068Annual Cost with 1 Claim: $2,068Annual Cost with 2 Claims: $3,068

3. What’s the Likelihood You’ll Have an Accident or Make a Claim?

The general rule of thumb is that if drivers are more likely to file an auto insurance claim, they’ll have lower total costs with a low-deductible car insurance plan. Conversely, a higher deductible plan means you’re taking advantage of low policy rates while betting that you won’t have an accident.

When considering the likelihood of having to file a claim, ask yourself if you have a history of car accidents or engage in high-risk driving habits such as speeding or rush-hour driving.

Low Deductible:Better if you’re more likely to have a car accident High Deductible:Better if you’re less likely to have a car accident

4. How Expensive Is Your Car?

It’s generally better to have a lower deductible if you have a cheaper and older car. Depending on which state you live in, most insurance companies will only pay up to the value of your vehicle if the car is considered damaged beyond repair.

For example, let’s say a driver has a vehicle worth $1,500 and a $1,000 deductible on their insurance policy.  If the car is totaled, the insurance company will only pay out $500, which is the amount after your deductible.

Find out how much your car is worth. Then, compare its value to your insurance policy costs. Savvy insurance agents may be able to help you mix and match insurance deductibles based on your car’s value. For example, if you have a low-value car, you could opt for a low-deductible comprehensive or collision insurance policy while having a high deductible for your liability coverage.

Low Deductible:Better for cheaper cars High Deductible:Better for more expensive cars

5. How Does Your Cash Savings Compare to the Deductible Amount?

If you do get into a car accident, you’ll have to pay the full amount of the deductible before your insurance company starts chipping in for the car repairs.

If you don’t have savings or an emergency fund to cover a high deductible cost, it may be better to choose a low-deductible policy. The higher monthly bills for insurance premiums may be a better way to protect yourself from financial problems if you have an accident.

Low Deductible:Better for those who want to avoid a large, unexpected bill after an accident High Deductible:Better for those who have savings to cover the deductible after an accident

6. What’s Your Tolerance for Risk?

Choosing a high-deductible plan is a gamble that you won’t have a car accident. If you do have an accident with a high-deductible policy, you’re still covered. But you’ll end up paying more than if you had a low-deductible policy.

Low Deductible:Better for risk-averse people High Deductible:Better for those who are comfortable with taking a risk they won’t have to file a claim

A high-deductible car insurance policy is good for those:

  • Less likely to have a car accident or file a claim
  • With an emergency fund to cover a large repair bill if needed
  • Needing to cover a more expensive car
  • More comfortable with risk

A low-deductible car insurance policy is better for those:

  • More likely to file a car insurance claim
  • Owning a cheaper car
  • Without savings to cover a large unexpected bill
  • Risk averse
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