Should You Increase Your Auto Insurance Deductible? Only if You Can Say Yes to This

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  • Car insurance deductibles and premiums tend to have an inverse relationship.
  • Raising your deductible could make sense, but only if you can afford a larger outlay if you need to get your car repaired.

Don't rush into that decision.

For many drivers, auto insurance is a big expense -- and an unavoidable one at that. The good news is that there are things you can do to lower your auto insurance premiums. For example, if you take a defensive driving course, your auto insurer might give you a discount, since by taking that course, you might come off as less of a risk. Similarly, maintaining a safe driving record without moving violations could also result in lower auto insurance premiums.

But there's another move you can make to reduce your car insurance premium costs: raising your deductible. Your deductible is the amount of money you're required to pay out of pocket every time you file a claim against your car insurance policy. So say your vehicle incurs $1,500 of damage for something your insurer will pay for. If your deductible is $500, that means you'll pay that amount and your insurer will cover the remaining $1,000.

Some drivers prefer to keep their auto insurance deductibles as low as possible. But raising yours could pay off -- under the right circumstances.

Why it could pay to have a higher deductible

At first, the idea of a higher car insurance deductible might seem silly. After all, who would want to sign up to pay more out of pocket for claims?

But the benefit of raising your car insurance deductible is that it will generally result in lower premium costs. If you don't drive all that often and feel you're less likely to get into accidents or sustain vehicle damage, then swapping a higher deductible for lower premiums could pay off. But if you're going to raise your deductible, you'll need to make one move first.

Assess your savings

Raising your deductible means having to pay more each time you file a claim with your insurance. And so it's important to make sure you have enough money in the bank to absorb those higher costs.

To that end, take a look at your emergency fund before moving forward with a change to your auto insurance. If your emergency savings are strong, then increasing your deductible may not be a bad move. The logic is that you can dip into your savings to cover your deductible as needed, but you'll also enjoy lower premium costs that could, in turn, help you pad your emergency fund.

But before making that switch to a higher deductible, make sure you're well stocked on cash right now. Don't assume the savings you reap over time by lowering your premiums will help you build emergency savings in case you need to dip in for an issue related to your car. If you happen to make that change and get into an accident three weeks later, you could be sorely out of luck.

Auto insurance premiums and deductibles tend to have an inverse relationship -- the higher one is, the lower the other is. If you're inclined to raise your deductible, make sure your emergency fund can support that. And if not, wait until you've built up more savings to make that move.

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