You can save money on auto insurance by raising your deductible. Insurance companies offer reduced rates when drivers increase their car insurance deductible amounts because drivers take on more risk, making the policies less costly for the insurer -- this is an essential component of how car insurance works. Raising your deductible is a smart choice-as long as you can afford the deductible if you're in an accident.
This guide to auto insurance deductibles demonstrates how premiums increase or decrease when you change your deductible. It shows how deductibles affect what you pay in the short-term and over time, and gives you the tools you need to determine which deductible is right for you.
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What is a car insurance deductible?
High deductible vs. low deductible auto insurance
How much can you save by raising your auto insurance deductible?
Car insurance deductibles and claim costs
How do car insurance deductibles work?
What if you can't pay your auto insurance deductible?
A car insurance deductible is the amount you have to pay when you file an insurance claim with your carrier.
For instance, if a tree falls on your car, causing $1,000 in damage, you don't get a $1,000 check from your insurer. You get $1,000 minus your deductible. If your policy has a $250 deductible, your insurer pays you $750. If your deductible is $600, you should receive a payment of $400. And if your deductible is $1,000, you get nothing.
You choose your deductible amount when you buy an auto insurance policy. Insurance.com's Car Insurance Coverage Calculator is designed to help you choose the right amount of protection for your needs, including a deductible.
When selecting your deductible, consider the following factors:
- What can you afford to pay if your car is damaged and undrivable? If you have one car and you need it to commute to work, you probably don't want a deductible that exceeds your emergency savings balance.
- Your deductible is not a factor unless you make a collision or comprehensive insurance claim. If you make a claim against another party's liability insurance, no deductible is due.
- A low deductible may not benefit you, because filing a claim for a low amount could raise your future premiums by more than you may collect. In reality, you would probably avoid filing a claim for damages unless they significantly exceed your deductible. For example, if your deductible is $1,000 and your damages are $1,200, you'd probably absorb the $200 and not risk a rate increase do to filing the claim.
- How much savings could you realize by raising your deductible, and how many years would it take for the premium savings to offset the extra costs if you file a claim?
Keep in mind that adjusting your deductible amount is just one way to secure cheap car insurance. Consumers are advised to familiarize themselves with eight auto insurance aspects that can make a difference.
According to the Insurance Information Institute, increasing your deductible from $200 to $500 can make you eligible for a 15- to 30-percent premium discount, while raising the deductible to $1,000 can save you up to 40 percent. However, this varies widely depending on the state in which you live, the cost of your coverage after taking any other discounts, your driving record and your car's cost to repair or replace.
The chart below shows actual quotes from six insurers for a female California driver with a clean record and liability coverage limits of $100,000 per person, $300,000 per accident and $50,000 for property damage, plus uninsured motorist coverage in the same amounts. Companies differ in the discount amounts given for higher deductibles.
Insurance premiums at different deductible amounts
Difference between $1,000 and $250 ded.
Premium savings %
Look carefully and you'll notice that the higher discount percentages don't necessarily indicate the lowest premiums. When insurers use terms such as "up to 40 percent discount," it may or may not indicate the best deal. Company F's impressive 30 percent discount looks a lot less enticing when you see the base premium they're starting with. Understand how to compare car insurance quotes.
A car insurance rate comparison tool like the one on Insurance.com can help you easily evaluate quotes from competing insurers and show you where your best deal lies at whatever deductible you choose.
If you raise your deductible from $250 to $1,000 and save $150 per year on your auto insurance premium, it could take you five years for the lower premiums to offset the extra deductible in the event that you have a claim of $750. However, that's not the only factor to consider. Filing a single claim can cause your premium to increase between 10 and 40 percent, and can go higher. In that case, if your deductible is $250 and you file a $1,000 claim, a $750 insurance reimbursement could cost you an extra $400 a year for the next three-to-five years. If that potential increase could cause you to pay the repair cost yourself, there's little reason to go with a lower deductible.
On the other hand, not all insurers treat a single claim the same way. Using the same hypothetical California woman, rates were compared when the driver had a single car accident causing damages in amounts ranging from $1,000 to over $10,000. Of the six insurers quoted, only two charged a higher rate if the driver had a claim -- that's the good news. However, that increase went into effect whether the claim was $1,000 or $10,000, indicating that filing a smaller claim may well cost more than it pays.
How claims change rates, assuming $500 deductible
Premiums charged after first claims at varying amounts
Auto insurance deductibles don't come into play if another driver's insurer is responsible for covering your damages. When your insurer will be paying, though, it works like this:
- You contact your insurer and report the incident. You'll also file a police report, if required.
- Your insurer assigns an adjuster to you. This person will contact you and then will either inspect the damage to your vehicle or have you take the car to a certified repair shop for an estimate.
- The adjuster crunches the numbers and determines what the repairs should cost, or whether the car should be declared a total loss.
- If you own your car free and clear, you may be issued a check for that amount, less your deductible. If your car is financed, the check is likely to be issued to the repair shop. Note that you can choose which shop you want to complete the repairs.
If your emergency funds are depleted and you can't pay your deductible, you have a few options:
- Delaying repairs. You may be able to put off the repair until you have the money if you have alternate transportation or your car is safe to drive. Keep in mind, though, that you still need to report the claim immediately for your insurer to pay it.
- Shop for lower-cost repairs. If the check is made out to you, try searching for a few more estimates to see if you can find a cheaper repair cost. Some shops will "waive" the deductible, which means they'll perform the work for less than the estimated cost or the adjuster's numbers.
- Search for a car insurance deductible payment plan. Ask your preferred shop about a car insurance deductible payment plan, allowing you to pay your part of the bill over time. You'll probably have to pay interest, but your car can be repaired promptly.
Car insurance deductible amounts are a personal consideration. The right one for you depends on your driving record, location, financial position, insurer and other factors. You can compare quotes from multiple insurers at every deductible level by using the helpful tools at Insurance.com.