Should my auto insurance deductible be $500 or $1,000?
Choosing between a $500 and $1,000 auto insurance deductible depends on how much you can afford right now and how much you expect to save for emergencies moving forward. A lower car insurance deductible means you'll pay less out of pocket in the event of an accident but pay more upfront in premiums. A higher deductible means you'll pay less upfront in premiums but more in the event of an accident. Drivers nationwide save an average of 8% - 10% on car insurance premiums by increasing their deductible from $500 to $1,000, according to a survey commissioned by InsuraQuotes. But where you live plays a big role in how much you could potentially save by choosing a higher deductible. Drivers in Michigan can save an average of just 4% on premiums by increasing their deductible from $500 to $1,000, while drivers in Massachusetts can save as much as 19%. Car insurance companies typically use a $500 deductible to give quotes, which means you'll need to make a point of checking how things change with a $1,000 deductible. In doing so, remember that premium savings from a higher deductible will not always be proportional to the extra out-of-pocket costs after an accident. As a result, you'll need to figure out how much you would save on your premium with the $1,000 deductible and whether those savings are worth an extra $500 out of pocket if you have an accident. If not, you might be better off paying a higher premium in return for lower financial risk on the back end. That's especially true if your vehicle is worth a relatively low amount. For example, if you have an old car that's only worth $2,500, you don't want to carry a deductible of $1,000. It's too close to the total value of your vehicle, which means the replacement cost wouldn't put much more stress on your finances than the deductible itself. When choosing between auto insurance deductibles of $500 & $1,000, consider your: Car's value Income Monthly expenses Savings/reserve funds Available revolving credit It might be worth comparing your premium quote with other deductibles, too. Some companies offer lower and higher options in addition to the more popular $500 and $1,000 deductibles. You'll commonly see $100, $250, or $2,500 deductibles available on car insurance policies. Although higher deductibles can keep premiums low, it's important to think about what you can afford if something happens. You won't be happy if you can't get your car fixed because you picked a $2,500 deductible and don't have enough money to pay it. So, make sure to factor in how much you'll realistically be able to pay out of pocket without much stress. No matter what you decide, be sure to set aside enough cash to cover your deductible before you need to make a claim.
You can find a hundred columns that give advice about saving money and buying from a cheap auto insurance company. Typically they advise you to increase your deductibles to $1,000 and take off any extras like rental, roadside, uninsured, and additional features in order to secure the cheapest possible rate. But let’s examine it from another angle.
Depending on your financial circumstances, it may be better to stick with a lower deductible — even one as low as $250 — which will save you money in the event of an accident that results in a claim.
What is an auto insurance deductible?
A car insurance deductible is the amount you pay following a claimable event before your insurance kicks and in and pays the rest, up to the limits of your coverage. Your liability insurance, which pays medical and property damage costs for the other car and driver, doesn’t have a deductible. But other parts of your policy do, most notably collision and comprehensive coverage.
So if you hit a deer and it does $2,000 worth of damage to your front end, your comprehensive will pay for those damages. But first, your deductible is subtracted from the amount insurance will pay you for the total. So if your deductible is $500, you’ll get a check from the insurer for $1,500 — the total minus your deductible.
Does increasing your deductible save money on auto insurance?
The short answer is “yes.” Your premium rate will go down if you choose a higher deductible. How much? That depends on your insurer, the state you’re registered in, and other factors. According to the Insurance Information Institute, increasing your deductible from $200 to $500 could reduce collision and comprehensive costs by 15-30%; going to a $1,000 deductible could save 40%.
If you have a newer model car and/or a car loan, there is no getting around needing full coverage that includes collision and comprehensive. If you chose a $1,000 deductible, call your auto insurance company and ask what the difference in rate would be if you dropped your collision to $500 and your comprehensive deductible to $100.
If you have a great track record with driving and continuous insurance, you might discover that you have only added $10-$20 to your monthly bill by dropping your deductibles. At most, that is $240 for the entire year.
If you had even one incident where you had to place a collision claim with your auto insurance company, you have actually saved $760. You would have to go a long time without a collision claim to make that $1,000 deductible worthwhile. Certainly it is much easier to come up with $500 than it is $1,000.
Where to find your deductible information
Your deductible should be clearly stated on the first page of your insurance policy, called the declarations page, for both auto and home insurance. It will be listed as either the dollar amount you’ve chosen or, for some types of policy, a percentage of your total coverage.
What to consider before raising your deductible
There’s really no one answer that’s right for everyone to the question of should you raise your car insurance deductible. The cost of your policy, how often you make claims and your own financial situation all play a role in your decision regarding deductible vs premium.
The actual cost of your insurance policy
The less you’re paying for insurance, the less likely it is that you’ll save a great deal by increasing your deductible. Why? Because your savings are a percentage of your premium. Let’s say increasing your deductible will save you 20% of your premium, which is $1,000 a year. That’s $200. In five years, if you make no claims, you’ll have saved enough to pay for the increased deductible.
However, if your premium is $400, you’re only saving $80 a year by raising the deductible to $1,000. It would take you more than a decade to save the amount you’ll be spending with one claim.
How often you make an auto insurance claim
How good a driver you are also plays a role. The less likely it is that you’ll have an accident, the more it makes sense to raise your deductible. Comprehensive claims are more likely to happen than any other claim, so you really don’t want to carry a high deductible on that if possible. Your comprehensive coverage pays for damage you incur through no fault of your own.
If you have more than one comprehensive claim in a year, you’d be out $1000 every time if the cost to repair your car was over $1K, or you’d be paying all on your own if the repair costs are under $1K. The bulk of insurance premiums are paid for collision and liability coverages, so raising your comprehensive claim is often superfluous and will barely make any difference.
How much you can afford to increase your deductible
Is it better to have a $500 deductible or $1,000? Consider your own financial situation. If you have a nest egg tucked away with a few thousand dollars in it for emergencies, perhaps the higher deductible won’t be an issue.
But if paying $1,000 out of pocket every time you make a claim would be a hardship for you, then it doesn’t make sense to increase your deductible just to save a few dollars on your premium. Your deductible should always be an amount that you would be able to comfortably pay in the event that you need to make a claim.
The takeaway
You should make a strategic decision on raising your deductible based on your finances, driving ability and other factors.
- Your deductible is the amount you pay before insurance kicks in after a claim.
- Raising your deductible will lower your monthly premiums.
- Although you may save money, it depends on how often you make a claim.
- If you can’t afford a higher deductible, you shouldn’t raise it.
Raising the deductible on your auto insurance is a personal decision based on a number of factors, including the cost of your policy, your driving skills and your ability to pay a higher deductible in the event of a claim. It may save you money in the short term, but you need to do the math to find out if it’s really a financially good move.
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