Dave Ramsey Said This Is the 'Quickest and Easiest Way to Lower Your Car Insurance Premiums.' Should You Do It?

Ramsey's advice could save you money, but it's not without a catch.

Car insurance is required by most states and is an important purchase for every driver because it provides vital protection for assets. But, while it is an essential buy, seeing those premium payments come out of a bank account or get charged on a credit card isn't necessarily a fun thing for most people.

The good news is, there are a number of different ways to reduce auto insurance costs including shopping around for coverage and taking defensive driving courses.

Finance expert Dave Ramsey has also recommended one particular technique as being a very simple and effective way of reducing coverage costs. But, while his suggested approach would work, it's not without its downsides.

Here's how Ramsey said to reduce car insurance costs

Ramsey said reducing a car insurance deductible is a simple, straightforward way to lower the costs of an auto insurance policy.

"The quickest and easiest way to lower your car insurance premiums is to raise your deductible," the Ramsey Solutions blog reads. "Almost always, higher deductibles = lower premiums."

A deductible is an out-of-pocket payment a policyholder has to make for a covered loss. The policyholder has to meet the deductible, or pay out the pre-selected amount of money, before insurance pays for the remainder of covered expenses. For example, if a covered car incurs $5,000 in damage and the policyholder had a $1,000 deductible, the policyholder would pay for the first $1,000 of repair costs and the insurer would pay the other $4,000.

Deductibles have a direct impact on premiums because a higher deductible means an insurer stands less of a chance of paying out money.

"If your policy has a lower deductible, that means the insurance company takes on more risk," Ramsey explained. "You'll pay less for the repairs in the moment, but you'll have higher premiums as a result."

Should drivers try this technique?

Raising a car insurance deductible can absolutely work to cut premiums. In fact, there should be an immediate reduction in auto insurance costs as soon as a deductible is increased. And drivers have a wide range of choices for how big (or small) they want their deductible to be. For example, a motorist could choose to have a $250 deductible, $500 deductible, $1,000 deductible, and on up from there.

The downside, though, is that a higher deductible means the policyholder personally takes on more risk of having to make a bigger payout after something goes wrong. If a driver has a $2,000 deductible, they would need to make sure they actually had that much money to cover repairs or other costs after a collision, the theft of their car, or some other covered problem occurs.

This is why Ramsey says it's best to raise a deductible only when an emergency fund is available to pay the repair or replacement costs if need be.

For drivers who have the funds to pay a reasonable amount out of pocket if something goes wrong, this technique is a good one that's likely worth using to make auto insurance cheaper. But motorists who would be left worrying about where the cash for a deductible would come from should consider other ways to reduce insurance premiums so they don't take on more risk than they can handle.