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If you’re looking to save money on car insurance, raising your deductible can lower your monthly insurance payment. However, there are some trade-offs to consider when doing this, such as increased out-of-pocket costs for covered repairs. Understanding the pros and cons of changing your deductible can help you choose one that fits your unique coverage needs and budget.
How deductibles can impact your premiums
Typically, the higher the car insurance deductible you are willing to accept, the cheaper the premiums will be, as you are assuming more financial responsibility in the event of a claim. Conversely, if you have a lower deductible, your insurer assumes more financial responsibility and will therefore typically charge a higher rate for coverage.
If you have the financial buffer to account for the out-of-pocket costs of a claim but are looking for ways to trim monthly or annual costs, raising your auto insurance deductible may deliver significant savings. For example, increasing a deductible from $200 to $500 could reduce collision and comprehensive coverage costs by 15% to 30%, according to an estimate from the Insurance Information Institute (III). Moving up to a $1,000 collision or comprehensive deductible, the III says, might save you 40% or more.
But there are other factors that can contribute to the amount of premium savings you gain or lose by changing your car insurance deductible. For instance, more expensive vehicles may result in a higher premium that would not significantly be reduced by changing your deductible.
In addition, key issues like driving record, miles driven, location and claims frequency also impact your insurance premium over time — influencing how much of a bottom-line difference changing your deductible may make.
In fact, when comparing the impact of moving from a low deductible to a higher one, you may find that once you reach $1,000 or so, going higher (even if you switch carriers) will not return enough in premium savings to make it worthwhile.
As an example, assume that shifting from a $500 to $1,000 deductible shaves 20 percent off your annual premium of $900 — reducing it to $720. But recouping the $500 increase in deductible would take almost three years ($180 in annual premium savings x 3). If you are accident-free during that time, raising the deductible saves money. If not, that higher deductible may have cost you more.
To determine the best value, ask for pricing using several deductible options from your shortlist of providers you compare for quotes.
Minimum and maximum deductible limits
Minimum car insurance requirements vary by state, and insurers may offer a range of separate deductibles with minimum and maximum limits for both comprehensive and collision — the two main types of coverages that typically include deductibles. (There is no deductible on the liability coverage portion of a policy.)
Nationally, the average annual cost of car insurance in 2023 is $622 for minimum coverage, and $2,014 per year for full coverage, according to quoted premiums from Quadrant Information Services. Standard car insurance deductibles are $500 and $1,000, according to the III, but they can range as wide as $100 to $2,000 in some cases.
Options for setting a deductible may be limited, however, if you have a car loan or lease; most vehicle financing agreements require a maximum deductible for collision and comprehensive coverage — often no more than $500. This means you may be able to pick a lower amount if you prefer, but not a higher one, such as $1,000.
How deductibles can impact your claim
If your car is damaged and you file a claim, the deductible is subtracted from the amount your insurer will pay (up to your coverage limit). Say your policy is written with a $1,000 deductible. That recent fender-bender led to a claim for your SUV for damages totaling $3,500. The check you would receive from your insurer to cover the repairs will be $2,500 (not factoring in depreciation).
It is also important to remember that the car insurance deductible you choose applies every time you file a claim. So, if you have two separate accidents during a policy period, and you have a $500 comprehensive deductible, you would pay $500 each time, depending on the circumstances.
Sometimes, the type of claim impacts how or even if a deductible applies. In general, deductibles apply when there are covered damages to your car, and not when there are damages to another driver’s vehicle. If you are not at fault in an accident (and you do not live in a no-fault state), you should not have to pay a deductible for damage to your car. In that case, the other car’s driver covers your repairs through their insurance policy.
Pros and cons of changing your deductible
As with most things, there are trade offs to consider when altering your car insurance deductible. The consequences of your choice center on your comfort level with the ability to pay a portion of the costs of a claim vs. the premium savings you may gain from accepting more risk.
To help find the sweet spot — the ideal balance of premium and deductible expenses — here are some pros and cons to keep in mind when deciding whether to opt for a higher deductible.
- Cheaper car insurance premiums: Raising the amount of your deductible has the potential to substantially reduce your insurance premiums. By doing this, you could potentially make the cost of car insurance more affordable.
- Flexibility: If you raise your deductible, it doesn’t have to be a one-time, permanent policy declaration. In most cases, you may have the freedom to choose a deductible that fits your budget, and you are free to reevaluate what your deductible is as circumstances change.
- Cash flow for other needs: Having extra money from premium savings could help pad your emergency fund for other unanticipated expenses, or set aside money to cover that higher deductible before you ever need it.
- Greater financial responsibility for claims: With a higher deductible, you will pay more out of pocket for repairs as part of a covered claim, so you need to make sure that you’re able to afford the higher costs. It’s also important to note that in some cases, the amount of damages will be less than your deductible, so you’d need to cover the cost of repairs out of your own pocket.
- Limited savings depending on your situation: As in our earlier example, it helps to do the math and compare potential savings because raising a deductible will not make sense in every case. That is why it can be a good idea to consider all the variables that contribute to the cost of your car insurance and explore different deductible vs. premium options from several car insurance carriers.
- Less peace of mind: If the budget is tight and you would find it hard to pay a high sum every time a claim occurs while you wait for insurance reimbursement, having a higher deductible may not be worth the stress on your finances.
Frequently asked questions
A deductible allows insurers to share risk with policyholders. The higher your deductible, the less money an insurance company has to pay out due to a covered claim. In addition, deductibles may reduce how often customers file claims, potentially helping insurance providers remain financially stable.
If you get into an accident, you’ll be responsible for paying $1,000 out-of-pocket before your insurance kicks in. For example, if your deductible is $1,000 and a hail storm causes $3,000 in damages to your car, an insurance provider would only cover $2,000 of the damages. But if a hail storm damages your car beyond repair, your insurance company will generally only pay out your car’s current market value, minus your deductible.
You generally pay your deductible to a car repair shop after it fixes your vehicle. Once you file an insurance claim for damage to your car, an insurance adjuster usually reviews your claim and determines how much your insurer will pay for repairs based on your policy limits and deductible. The remaining amount is your responsibility.