Should You Raise Your Auto Insurance Deductible? Here's How to Decide

Finding affordable auto insurance isn't always easy. The average annual premium for 2023 was $3,017, and inflation will likely drive this rate up even higher in 2024. Many drivers want ways to reduce their premiums without sacrificing coverage, and raising their deductible is one way to pull this off.

But it might not be the best strategy for everyone. Below, we'll take a look at the pros and cons of raising an auto insurance deductible and the other options drivers have.

Is raising the auto insurance deductible worth it?

Raising an auto insurance deductible can reduce premium costs, sometimes significantly. Exact savings will depend on the driver, the insurance company, the vehicle make and model, and the amount of the deductible increase. But it could save drivers hundreds over the policy term.

Not all increases are created equally, though. One Progressive study found that increasing the deductible from $100 to $250 dropped premiums by 29%. But increasing the deductible from $1,000 to $2,000 only reduced premiums by 17%.

Before going ahead with a deductible increase, it's important for drivers to ensure they have the cash on hand to cover their higher deductible. Otherwise, they could find themselves in a tight financial spot if they have an accident. Keep the deductible money in a high-yield savings account with the rest of your emergency savings so you won't accidentally spend it.

Those who don't have the extra cash on hand but are willing to save for it may want to set aside the money they're saving on premiums each month until they have enough for the deductible. For example, if the premium drops from $250 per month to $200 per month, save the extra $50 until you have enough for the new, higher deductible.

What are some other ways to save on auto insurance?

Drivers who don't think they can afford a higher deductible may want to explore alternative methods of reducing their costs. Shopping around is always the best way to find an affordable rate on car insurance. Every company evaluates risk differently, and that's why they all charge the same driver a different rate.

This is especially helpful for drivers with accidents or other negative marks on their record. Some insurers penalize drivers harshly for this, while others only bump up premiums a little bit. The only way to find which company offers the best deal is to compare quotes.

Those who are comfortable enrolling in a driver monitoring program may also want to consider this. Most insurance companies give drivers an upfront discount on their premiums for signing up. Then, they'll monitor the driver's behavior through a small device installed in the car or a mobile app. Safe driving behavior could result in even more savings.

Reducing coverage could also be an option for drivers who have more than their state minimum coverage. But this should be a last resort. Reducing coverage could leave the policyholder without adequate protection if they cause a serious accident. This could cost the drivers tens of thousands of dollars out of their own pocket.

Drivers who aren't able to find a policy that fits well into their budget should consider shopping again in a few months, especially if they have accidents on their record. Companies can change their rate algorithms over time, and a driver's risk profile also changes. It's possible a more affordable option will come up in the future for those willing to look for it.