One of the biggest insurance myths is that raising your deductible will lower your monthly premiums proportionally or evenly. But it doesn’t work that way. If you raise your deductible 100% from $500 to $1000, your premiums won’t automatically go down 50% from $80 to $40. How much can you actually save if you increase your auto insurance deductible?

Raising your auto insurance deductible will lower your monthly premiums – but the difference may not be as much as you anticipate. Before you assume a higher risk with a greater deductible, you’ll want to do some calculations to see how much you’ll save versus how much you’ll risk by doing so. 

How do you know if you should increase your auto insurance deductible?

First thing’s first - what’s a deductible?

A deductible is the amount you pay out of pocket before the insurance company will step in to cover the rest of your repairs or replacement (up to your coverage limits) in the event of a covered claim.

Let’s say you have a $500 deductible with your collision coverage. Another car hits you, resulting in $3,000 in damage for your car. You may a claim on your insurance for the damage. In this scenario, you, the insured, are responsible for your $500 deductible, and then the insurance company would help cover the remaining $2,500.  

Note: Deductibles are only used for damages to your own property, not liability cases. You’ll typically have a different deductible for each coverage under your car insurance policy. For example, you could have a $500 deductible for collision and a $1,000 deductible for comprehensive.

What’s the deductible-premium relationship?

In general, a higher deductible means a lower premium (monthly or annual cost to pay for insurance). When you raise your deductible, you’re assuming more of the risk and financial cost. If you get into an accident, a higher deductible means you would have to pay more out of pocket and the insurance company would have to pay less. Insurance companies typically require a lower premium for a high deductible, since you’re assuming more of the risk.

But the relationship isn’t direct or proportional. Raising your deductible drastically doesn’t necessarily mean your monthly premium will lower drastically. This is where you need to dig in a little deeper into the numbers.

Can you pay the deductible out of pocket?

Before you even look into the potential savings on your auto insurance premium, you’ll want to look at the actual deductible number first. Would you be able to pay that deductible out of pocket right now if you were in an accident? If you can’t afford the deductible, you probably shouldn’t have it that high.

For example, let’s say you have a $5,000 collision deductible. Another car hits yours, resulting in $8,000 in damages. The insurance company will only give you $3,000 to fix the car, and you’re responsible for the other $5,000 (because that is your deductible). If you don’t have the cash on hand to pay the $5,000 to fix your car—you could end up with a unusable car!

We recommend you never raise your deductible higher than your bank account can comfortably handle in the case of an incident.

What does the math say?

You’ll want to see if changing your deductible is actually more beneficial financially. That means doing a few calculations.

Take a look at what your current premium and deductible are. Then ask your insurance agent what the premium would be if you raised your deductible to the next level or two. Consider the difference.

Here’s an example. Let’s say you currently have a $500 deductible on your auto comprehensive coverage, and your monthly premium is $80. Your agent says if you have a $1,000 deductible, your premium would be $72 per month ($8 less). That means you’re assuming $500 more in risk, but you’re only saving $96 per year on your premium. It would take almost five years without any auto comprehensive claims to make up the difference in the deductible.

But if raising your deductible to $1,000 resulted in a premium of $58 per month ($22 less), then you would save $264 per year. That’s less than two years to make up the difference. This may be worth it for you if you’re a safe driver with low risk, and if you’d still be able to pay the $1,000 deductible out of pocket. 

Basically, how long would it take to make up the difference in what you’d save on your premiums to pay for the deductible?

Read: Should I Have A $500 or $1000 Insurance Deductible?

How often will you use your insurance?

Your deductible will also depend on how often you would make a claim. If you’re financially secure and you don’t want to submit a lot of insurance claims (because it could raise your insurance costs), you might choose not to submit a claim for any damages under $500 or $1,000. In that case, a higher deductible wouldn’t hurt you anyway, because you’re only really using your insurance for the “big stuff.” You’ll save more per month, and your auto insurance focus is more on major incidents as opposed to the nicks and dings.

If you tend to use your auto insurance more frequently, though, a lower deductible might be worth it to you.

How risk tolerant are you?

The savings you’ll see by raising your deductible usually aren’t enough to outweigh the risk you’re assuming. Saving a few dollars per month is not usually worth taking on more responsibility in the case of a costly accident.

Raising your deductible is a risk. You’re hoping that something doesn’t go wrong, but you’re taking on additional financial responsibility if it does.

Keep in mind that a lot of auto accidents are unpredictable and out of your control. Other drivers, animals, and even “acts of God” can all do lots of damage to your car. Hazards are out there and out of your control, and you don’t want to risk not being able to use your car when you need it.

Read: How To Choose A Comprehensive Or Collision Deductible

Should I raise my auto insurance deductible?

Our advisors typically recommend not taking the risk by raising your deductible. Don’t gamble with your savings, especially with something as uncertain as auto accidents. You never know what can happen on the road, but you want to maintain control over your own finances as best as possible.

There are other ways you can save on your auto insurance premiums that don’t assume the same risk that a higher deductible might. Even keeping your car in a garage could get you a 5% discount! Check out these 16 ways to lower your auto insurance premium that actually reduce your risk of accidents and financial burden

Before you make any decisions, talk with your insurance agent to better understand your premium cost and the coverages you carry. It’s their goal to keep you and your wallet safe and help you figure out the right company, the right coverage, and the right deductible and premium for you.  

 Let one of our expert insurance advisors help you find the right auto insurance and deductible by calling us today at (844) 819-2221!

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