Why does having a higher deductible lower your insurance premiums?

A higher deductible makes you less likely to file a small claim and places more of the financial burden on you if you do file one. Insurance companies reward you for reducing their risk of paying a claim.

Let’s say you have a deductible of $1,000 for comprehensive coverage. A tree falls on your car, damaging the hood. The damage is $900. In this case, it’s below your deductible, so you won’t file a claim and the insurance company doesn’t have to pay. If you had a $250 deductible, you would likely file a claim, pay $250, and the insurance company would have to pay the remaining $650.

Someone with a $1,000 deductible pays less in premiums because they carry more risk, and the insurer pays nothing on claims where damage costs less than that amount

How does a higher deductible reduce premium costs?

Raising your deductible reduces the cost of collision and comprehensive coverageComprehensive coverage helps pay for damage to your car caused by events other than a collision, such as theft, fire, vandalism, or natural disasters. It is subject to a deductible., but your actual savings depend on your insurer, policy, and other rating factors. According to Insurance.com, raising your deductible can save you as much as $875 a year on average; that's for an increase from a $250 deductible to $2,500. Bumping your deductible from $500 to $1,000 saves an average of $267 a year.

It’s all about risk, and the higher the deductible you’re willing to pay, the less the insurance company has to pay in the event of an accident. Insurance companies have to factor in the make and model of your car, along with other factors like your driving profile, and try to predict not only the likelihood of an accident but also the potential cost if one were to happen. What would repairs cost? How do insurers balance the amount they might have to pay out on your behalf with the premium you pay for the policy?

What is the highest deductible for car insurance?

The highest deductible you can choose depends greatly on your insurance company. Deductible amounts vary from state to state and company to company. While the average across the board is $500, the highest deductible is generally $2,000-$2,500.

Do you want a high or low deductible for car insurance?

Your financial situation should determine whether you choose a high or low deductible. A lower deductible can make a large repair bill easier to manage, while a higher deductible can reduce your premium if you have enough savings to cover the higher out-of-pocket cost. Make sure you can afford your deductible before choosing a higher amount.

“You might go with a lower deductible if you don’t want to deal with a large out-of-pocket bill when something goes wrong, and you're okay paying a higher monthly premium. On the other hand, a higher deductible could be a better choice if you have enough savings to cover a higher upfront cost after a loss and you'd prefer to pay a lower premium each month,” Deng says.

Keep in mind that if you're financing the vehicle, the lender chooses your deductible. Because the lender holds a lien on the vehicle to protect their financial interest, they may have the final say on deductible requirements.

Pros and cons of having a higher car insurance deductible

A higher car insurance deductible lowers your premium by reducing the cost of collision and comprehensive coverage, but you will pay more after a covered loss. A lower deductible provides more financial protection when you file a claim, but usually costs more. Your savings and emergency funds should guide your choice.

High deductible :

Pros	Cons
Lower monthly premiums	You pay more in the event of a claim
Lower likelihood of filing a claim	You need savings to cover the deductible
Not filing smaller claims keeps premiums low	You will have to pay for small repairs out of pocket

Low deductible :

Pros	Cons
You pay less in the event of a claim	Higher monthly premiums
You don’t need as much saved up to pay a deductible	Filing smaller claims will increase premiums
You can file smaller claims

How to choose the best car insurance deductible for your needs

To choose the best car insurance deductible, evaluate your monthly budget, emergency savings, vehicle value, and driver risk profile. Balancing these factors ensures you can afford repairs without overpaying for monthly coverage. If increasing your deductible saves little but creates a large financial burden, the higher amount might not be worthwhile.

Consider the following factors:

Can you handle a slightly higher monthly premium? If so, a lower deductible might be right for you.
Would you rather save money and stash it in a savings account? A higher deductible will get you a lower premium, and the cash you save can be used in case you ever need to file a claim, because you’ll have to pay more at that time.
If you have a teen driver, consider the higher risk of a claim. Teens are among the riskiest age groups and have some of the highest car insurance premiums. Considering this, do you want a low deductible, knowing you might have to file a claim, or a high deductible to try to shave some money off your premiums?
Do you have a loan? Your financing company may require a certain deductible, so ask first.
Some car insurance companies have deductibles as low as $250. Don’t be tempted by a low deductible if it will raise your premiums significantly. Take a look at the whole picture before deciding.
Depending on the age of your car, you may not want a high deductible. If your car is only worth $6,000, you may want to reconsider whether carrying collision or comprehensive coverage makes financial sense at all, regardless of deductible level.

FAQ: Higher deductible car insurance

Is a $1,000 deductible good for car insurance?

A $1,000 deductible is a good choice if you can afford that amount out of pocket, should you need to file a claim. Compare the out-of-pocket cost to the potential savings before increasing your deductible, and always choose a deductible you can afford.

Does a higher deductible lower liability insurance?

No. A higher deductible does not lower the liability portion of your auto insurance premium because liability coverage does not have a deductible. Your deductible applies to the collision and comprehensive part of your coverage, which pays for damage to your car, while liability coverage pays for covered injuries or property damage you cause to others.

What happens if the damage is less than my deductible?

If the covered damage is less than your deductible, your insurer won't make a payment, and you pay the repair costs yourself. For example, if you have a $1,000 deductible and covered damage costs $700, the loss falls below your deductible, so you would pay the full $700.

Can I change my car insurance deductible?

Yes, you can change your car insurance deductible at any time during the policy period, subject to your insurer's available options and any lender requirements. Increasing the deductible can lower the premium for applicable coverage, while decreasing it can raise the premium.