Will Carrying a Higher Auto Insurance Deductible Save Me Money?

Transportation: Two-car accident, wreck with people still inside red vehicle.
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You may have heard in the past that a good way to reduce your insurance premium is to carry a higher deductible (the amount you pay in case of a claim before your insurance will pay). Is this a good idea? The answer is: sometimes, yes; and sometimes, no. While it is true that carrying a higher deductible on your insurance policy can sometimes save you money; it is not always the best policy. Let’s examine the reasons why and some basic things you should know about auto insurance deductible options.

Auto Insurance Deductible Options

How do auto insurance deductibles work in the first place? All insurance is in its simplest form is a promise to pay. You are paying an insurance company for the promise to indemnify you, or make you as you were--before the event of a covered accident. The deductible is the amount deducted from an insured loss before the insurance company will pay. It is the company’s way of recouping some of its losses and sharing the risk along with the policyholder.

Deductible options will vary by state and by insurance company and must follow state laws. Options can vary from a $250 deductible up to as much as $1,000 or more. Some companies may offer a zero-deductible policy, but it will likely cost much more than a higher deductible auto insurance policy. The disappearing deductible option is available through some companies. This option reduces your deductible for every year you remain accident-free. Your best bet may be to choose something in-between the two extremes depending on your individual circumstances.

  • When Carrying a Higher Deductible Is a Good Idea: If you own an older make and model vehicle, it may be a good idea to carry a higher deductible to save money on your auto insurance policy or possibly eliminate comprehensive and collision coverage. Why is this? The vehicle may not be worth enough monetarily to justify the insurance premium you would have to pay. Classic vehicles would be an exception to this rule; however, you always have the option to purchase a classic car insurance policy made specifically for vintage cars or trucks.
  • When Carrying a Higher Deductible Can Cost You: Even if you do have an older vehicle and decide to increase your deductible to save money on your auto insurance premium, there are some other considerations you should keep in mind. For instance, if you are involved in an auto accident, will coming up with a higher deductible amount such as $500 or even $1,000 but an undue strain on your finances? If your answer is yes, the money you are saving on your insurance premium may not be worth the financial hardship you would create for yourself in the event of an auto accident.

The Best Solution

If you are unsure about whether or not you should carry a higher car insurance deductible, think about how having to come up with the deductible would affect your finances should you have a car accident. Is the savings on your auto insurance worth the financial hardship you may face having to come up with the larger deductible amount? Think about your car’s value. Is it worth the amount of insurance you would have to pay for full coverage? If not, you may be better off with a “liability coverage only” auto insurance policy.

 If you are still unsure, talk with an auto insurance professional who can advise of all your options and perhaps if there are some other ways you may be able to reduce your premium through auto insurance discounts or other programs.