Updated May 30, 2023, at 3:20 p.m. CT
There’s a lot to consider when choosing the right auto insurance policy for you. And an important part of the process is determining your deductible.
An insurance deductible is the amount you’re responsible for paying if you’re in a collision and held liable for it before your insurance covers the rest. The insurance premium is the amount you pay each month to have the insurance coverage.
Typically, the lower your insurance deductible, the higher your premium will be. And the higher your deductible, the lower your premium will be.
So, is it better to have a higher or lower deductible? Typically, your best option is to take the middle road and find a plan that offers the maximum deductible you can easily afford along with the lowest premiums.
Consider these tips when navigating the right insurance deductible for you.
Talk to your agent about your insurance deductible
Everyone’s situation is unique.
Your insurance agent can help you review your coverage, explore other options and play with the numbers to help you determine the best fit for you and your budget, said Brad Langan, senior insurance agent at Dupaco Insurance Services.
“If you’re not versed in insurance, you may not be getting what you think you are,” Langan said. “Different policies use different language.”
For example, Langan recently heard about a driver who accidentally left his keys in his car. The car was stolen, and the driver’s insurance won’t cover the claim. Why? The fine print states an exception for leaving the keys in the vehicle.
“That’s why you want to make sure you get a good policy,” Langan said.
Know what coverage your budget can afford
If you’re trying to save on your monthly premium by opting for a higher deductible, crunch the numbers first.
How financially sound are you?
In other words: If you’re involved in an accident, can you afford to pay a high insurance deductible?
“I’ve had clients get hit by other parties who didn’t have insurance. Their car was disabled, but they didn’t have the $1,000 to fix it,” Langan said. “Suddenly, you’ve got a car that’s useless.”
Calculate how long it would take to recoup your savings
Another calculation you should make: How much would you save—or not save—by going with a higher insurance deductible.
Your agent can help you do this. But here’s an example:
- Option A: $100 comprehensive deductible with a $200 annual premium.
- Option B: $500 comprehensive deductible with a $150 annual premium.
You would save $50 per year in annual premiums with Option B ($200-$150=$50). But you would be exposed to a $400 difference in your deductible ($500-$100=$400).
If you go with Option B and end up hitting a deer, it would take you eight years ($400/$50=8 years) to recoup the savings from the lower premium.
A general rule of thumb: If it takes you more than three years to recoup your savings, you might be better off with the lower insurance deductible.
Research your vehicle’s value
Consider how much your vehicle is worth when deciding your coverage and deductible. (Kelley Blue Book can help you determine this.)
Here’s why this matters: If your vehicle is no longer worth a lot, a high deductible probably doesn’t make sense. Your vehicle’s value is likely close to the amount you would have to pay to repair it.
Consider your risk
Your risk for filing a claim also comes into play. If you’re at a higher risk to make a claim—maybe you drive during busy traffic times—you might be better off with a lower deductible. But if you have a “colorful” driving history, making your premiums more expensive, a higher deductible might be more affordable.
Your agent can help you break down the numbers.
Factor in other perks
There’s more to consider than just your deductible and premium, though.
Does your policy cover towing? What about auto rental? If you only have one vehicle, and it becomes disabled in an accident, having the option to rent a vehicle at no cost to you can be priceless.
“There are certain things within an auto policy that you’ll want to have,” Langan said.
Automatically save for your insurance
Whichever deductible you choose, consider saving for the just-in-case expense with Dupaco’s You-Name-It Savings accounts. You can automatically set aside money for your deductible (and premiums) so the money is there when you need it.