Should You Get Car Insurance With a High Deductible?
by Maurie Backman | Updated July 15, 2021 - First published on June 27, 2021
Auto insurance with a higher deductible could be worth it. Here's what drivers need to know.
There are different factors that go into calculating the cost of auto insurance. Those factors include:
- The make, model, and age of a car
- A driver's age
- Driving history
But there's another factor that will dictate what auto insurance premiums cost -- the deductible.
You may be familiar with deductibles in the context of health insurance, and they work similarly with auto insurance.
A car insurance deductible is the amount of money a policyholder must pay out of pocket each time a car insurance claim is submitted. If a vehicle sustains damage that costs $2,000 and a driver has an insurance policy with a $500 deductible, it means the driver will have to shell out $500 for their insurer to pick up that tab.
Part of the reason car insurance companies charge deductibles is to encourage safer driving -- the logic being that drivers may be more careful if they know that each time a claim is submitted, it will come with a price. Deductibles may also, in some cases, deter policyholders from filing a claim, which is what an insurer wants.
If a driver has a $500 deductible and their car sustains damage totaling $400, in that situation, it wouldn't make sense to submit a claim. That's because they'd wind up paying more in the form of a deductible than they would for the entire repair.
Generally, in the course of shopping around for auto insurance, drivers can choose between a higher deductible and a lower one. But what's the right call?
The upside of a lower deductible
If a driver keeps their deductible as low as possible, it means they'll spend less each time a claim has to be filed.
Having a lower deductible could spare drivers from having to raid their emergency fund every time an issue arises with their car that needs to go through an insurer. When a policy with a reasonable deductible is chosen, a driver's paycheck is more likely to be able to handle it.
The downside of a lower deductible
Drivers who opt for an auto insurance policy with a lower deductible will spend less each time they file a claim. But they'll also pay more in terms of premiums.
Deductibles and premiums tend to have an inverse relationship -- the more you spend on one, the less you'll spend on another. So when a driver chooses a policy with a low deductible, they'll likely pay more for that policy in recurring premium costs.
What's the right call?
Anyone on the fence about getting a higher deductible or a lower one should try to calculate their costs under different scenarios.
Let's say a driver chooses a policy with a $500 deductible versus a deductible of $750. That means each time they file a claim, they'll save $250.
But how often do drivers expect to file a claim? Ideally, never. But it's fair to assume that a claim might have to be filed once a year. In that case, drivers need to weigh that $250 savings against the cost of higher premiums.
If an insurer will charge an extra $25 a month off the bat, or $300 a year, for a policy with that lower deductible, then it may not be worth it. That's because even if one claim is filed, drivers still spend more on higher premiums in the course of a year.
Of course, in this example, drivers come out ahead with the lower deductible as soon as two claims are filed within a year. But again, ideally, that won't be a necessary thing to do.
Whether it's better to go with a higher car insurance deductible or a lower one, drivers should be sure to shop around for multiple car insurance quotes before choosing one insurer over another. Comparing offers is a good way to land the most affordable deal.
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