How Much Can You Save by Raising Your Auto Insurance Deductible

User Calender 9 Mar 2018
View Icon 186 Views

How Much Can You Save by Raising Your Auto Insurance Deductible

 
Raising your car insurance deductible is one way to save money on auto insurance. But how much will you actually save. We’ve done the research, and here is the answer.
 

How Much Can You Save by Raising Your Car Insurance Deductible

 
When choosing the auto insurance policy that’s just right for you, you’ve got a lot of options. Do you want state-minimum liability? Should you pay more for full coverage? Can you take advantage of any special discounts? These are all important questions, but there’s one more to consider: whether raising your deductible will save you money on premiums each month.
 
Adjusting your policy’s deductible for collision and non-collision claims can indeed impact your premiums in either direction. But is the difference in price really that significant, and is it worth the financial risk?
 
Let’s take a look at what an adjusted deductible can do to your monthly bill, and whether it’s the right decision for you.
 
What is a Deductible?
 
When you purchase an insurance policy of any kind (auto, home/renters, or even health), there is a deductible involved. This is the amount of money that you, as the policyholder, agree to cover up front if you file a claim.
 
With an auto policy, the deductible is related to added coverage for your own vehicle. If you’re involved in an accident for which you’re at fault, your state-required liability coverage will cover repairs and damages for the other driver and their vehicle. But what about your car? You still have damage, and you’ll likely want it repaired.
 
If you’re at fault in an accident–or if your vehicle is involved in a hit-and-run, is broken into, or if the glass is broken/cracked somehow–you can make a claim against your full coverage auto insurance policy. Then, your insurance company will also pay for your vehicle’s repairs, for every dollar past your deductible amount.
 
What does this mean? Well, let’s say that you get in an auto accident and your vehicle sustains $4,000 in damage. You have opted for full coverage (as opposed to only buying state-minimum liability), and your deductible is $500. This means that you will pay the first $500 in repairs (usually to the repair shop directly). Your insurance company will foot the bill for the remaining $3,500.
 
Of course, you will pay more money in premiums for collision coverage each month. You’ll also pay more in premiums the lower you set your deductible.
 
Why Deductibles Impact Premiums
 
The lower you set your deductible for your collision coverage insurance policy, the higher your monthly premiums will be. Why is this? Well, by lowering your deductible, you’re essentially choosing to accept less risk for your policy. Your insurer shoulders more of the responsibility if you make a claim. So this translates to a higher bill for you each month.
 
However, if you choose to raise your deductible–essentially accepting more financial responsibility for future claims–your insurance company will reward you by lowering premiums. This is in their best interests, too. Higher deductibles eliminate smaller, more frequent claims against the policy. You won’t make $400 windshield claims if you have a $1,000 deductible, for instance. However, you might if you only have a $250 deductible.
 
So, you know a higher deductible means a lower monthly auto insurance premium. But how much lower are we talking? Is that drop in price each month really worth the added financial responsibility?
 
How Much Deductibles Impact Premiums
 
Unfortunately, there’s no clear-`cut answer as to exactly how much your premiums will be impacted if you adjust your deductible up or down. The answer is unique to each company and each individual policy. Depending on your vehicle, driving history, and coverage limits, you may see a greater or lesser impact.
 
We took a look at two auto insurance companies that both offer quick online quotes to see how a change in deductible would impact the quoted premiums. Here’s a look at how Esurance and Progressive measured up.
 
When I got my initial quote from Progressive, I picked a Choice (or mid-level) plan. This included property damage and bodily injury liability coverage that was twice my state’s minimum requirement. The default setting was for a deductible of $500 a month. It resulted in a monthly cost of $32.13 (or $386 a year).
 
You May Also Like