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Edited by Jackie Cohen
Last Updated June 15, 2022
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Your deductible affects what you pay in car insurance premiums. If your goal is to keep your monthly payments as low as possible, you may choose a high-deductible plan. After all, you’re a careful driver, and it’s unlikely that you’ll ever have to file a claim.
The truth is that accidents do happen, often when you least expect them. If you do get in an accident with a high-deductible car insurance plan, you’ll have to come up with a lot of money up front. So, before you commit to a high-deductible policy, consult an insurance agent or use this car insurance comparison tool to shop around and explore different car insurance quotes.
- Once you pay your deductible, your car insurance company will cover the rest.
- A high-deductible auto insurance plan will result in a lower premium.
- There are other ways to save money on your car insurance policy.
What is a car insurance deductible?
How high should I set my car insurance deductible?
If you have to file a claim with your car insurance, you’ll have to shell out your deductible before your coverage kicks in. Be sure to set your deductible at a reasonable amount that you’ll be able to afford in case of a claim.
An auto insurance deductible is the amount you have to pay “out of pocket” in the event of a covered loss. Once you pay your deductible, your car insurance company will cover the remaining cost of repairs. It’s similar to a deductible you might have with your health insurance policy.
Let’s say you have a collision policy with a $500 deductible. If you hit another vehicle or stationary object, collision coverage will pay for the damage after you fork over $500. As a driver, it’s your responsibility to choose the car insurance plan and deductible for your unique situation.
While a higher deductible means you’ll have to pay more for a covered loss, it also leads to lower auto insurance premiums. On the contrary, a lower deductible comes with a higher premium and lower out-of-pocket costs.
You’ll need to take a close look at your risk tolerance, finances, and preferences as well as the value of your vehicle so you can choose the right car insurance coverage and deductible. It’s a good idea to explore different car insurance rates before you make a decision.
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How Deductibles Work
If you have a car insurance policy with a deductible and get into an accident, you’ll need to file a claim with your auto insurance provider. Upon approval, you won’t have to send your car insurance company a check in the mail or give them your credit card number.
Instead, they’ll likely subtract your deductible amount from the approved payout of your claim. For example, if you’ve been approved for an $8,000 claim and your deductible is $250, your auto insurance company will issue you a check for $7,750.
If you cause an accident but there is no damage involved, you won’t pay a deductible. However, your liability coverage would pay for the other driver’s medical bills and property damage. You’ll only pay a collision deductible if your vehicle sustains damage and you decide to file an auto insurance claim.
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Why to Choose a High-Deductible Car Insurance Plan
A high deductible means you agree to cover more of the damage to your vehicle. On the flip side, a lower deductible requires you to pay more for your car insurance policy because you’ll pay less out of pocket after an accident.
In general, the higher your deductible, the lower your premium costs will be. But your auto insurance rates are based on other factors, not simply your deductible and insurance coverage limits. These include your age, credit score, driving history, and make and model of your vehicle.
Therefore, if the only reason you prefer a high-deductible plan is to lower your car insurance costs, you may want to think again. If you do file a claim and have to pay a deductible, you may actually end up spending more in the long run. Fortunately, you can save in other ways, like shopping around and taking full advantage of any discounts available to you.
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Pros and Cons of High-Deductible Car Insurance
As with any financial product, high-deductible collision insurance plans come with pros and cons:
The greatest benefit of a high-deductible auto insurance policy is a lower monthly car insurance payment. If you’re on a tight budget, this can free up some cash flow. Also, if you get lucky and never have to file a claim, you won’t ever have to pay the cost of the high deductible you initially agreed to.
In addition, a high-deductible plan may force you to pay for auto expenses out of pocket so that your annual premium doesn’t skyrocket. Lastly, if you go the route of a high-deductible plan, you can put the money you save toward a vehicle emergency fund that will help you pay for future car repairs and other out-of-pocket costs.
The most noteworthy drawback of high-deductible car insurance is that you’ll pay more when you file a claim than you would if you chose a lower-deductible plan. That’s why you should budget for both your monthly premiums and deductibles. Otherwise, you may be stuck with an undrivable vehicle until you can come up with the deductible amount.
Also, you won’t be able to predict the cost of an accident, so you may have to pay more than the insurance company covers. Let’s say you have a $1,000 deductible but the damage is only $1,200. You’d be forced to pay $1,000 to collect the $200 the insurance company owes you.
Additionally, a high-deductible plan isn’t a good option if you lease your vehicle. If you get into an accident and your car warrants a repair, the bank or lender might require you to take it to a specific body shop or mechanic so that it’s repaired correctly. This means you may have to pay top dollar for your repair and would be better off with a lower deductible.
What to Consider before Choosing a High-Deductible Plan
Before you sign on the dotted line of a high-deductible auto insurance policy, ask yourself these questions:
Can I afford the deductible in the event of an accident? Figure out if you can comfortably cover a high deductible after an accident. If you’re living paycheck to paycheck or don’t have a sufficient emergency fund, this may be a struggle.
What does the payback look like? Do the math and figure out how much you’d save in premium costs with a higher deductible. Your insurance agent can assist you with this calculation.
How often do you get into accidents? If you have a track record of car accidents, a lower deductible is likely your best bet. But if you rarely get into accidents, a higher-deductible plan may be beneficial.
What is your risk tolerance? High-deductible plans are riskier. If you have a high risk tolerance, you may want to consider them. However, if you prefer more security for you and your family, a lower deductible is a better choice.
How much is your car worth? Expensive vehicles lead to higher premiums. Therefore, you may save more money with a high deductible if you drive a luxury or exotic vehicle with a high value.
Choose the Right Deductible for You
As a driver, you have unique needs and preferences. Take the time to think about car insurance deductibles and figure out whether you prefer a low deductible or a high deductible. No matter what you decide, don’t forget to shop around with this car insurance quote comparison tool. You’ll receive personalized quotes in minutes, and there are no fees or sign-ups involved.
Frequently Asked Questions
If your auto repairs cost less than your deductible, it’s not a good idea to file a claim. By doing so, you’ll increase your auto insurance premiums, even if you didn’t cause the accident. The general rule of thumb is to only file a claim if the amount of money to repair your vehicle is much higher than your out-of-pocket deductible.
A high-deductible insurance policy may make sense if you have a good driving record, tend to drive in safe areas with minimal vandalism, and believe your chances of filing a claim are slim. You might also want to consider a high-deductible plan if your goal is to lower your car insurance premiums and you’re confident you’ll be able to pay your deductible in the event of an accident.
There are some car insurance companies that offer a “vanishing deductible” benefit. This means that your deductible will drop by a certain amount for every year you’ve been a policyholder with them. Some auto providers may also waive your deductible if someone is liable for an accident and you file a claim with your own coverage rather than theirs.
In most states, it’s illegal to drive without a liability insurance policy. Also, even if you consider yourself a safe driver, you may still find yourself in a major car accident. It’s better to pay a high deductible than to shell out thousands upon thousands of dollars for repairs. A high deductible plan can bring you some peace of mind on the road.
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The car insurance quotes displayed are based on an analysis of Insurify’s database of over 40 million quotes from 500 ZIP codes nationwide. To obtain representative rates, Insurify’s data science team performs frequent comprehensive analyses of the factors car insurance providers weigh to calculate rates including driver demographics, driving record, credit score, desired coverage level, and more.
Insurify’s analysis also incorporates the Insurify Composite Score (ICS) assigned to each insurance provider. The ICS is a proprietary rating that weighs multiple factors reflecting the quality, reliability, and health of an insurance company. Ratings used to calculate the ICS include Financial Strength Ratings from A.M. Best, Standard & Poor’s, Moody’s, and Fitch; J.D. Power ratings; Consumer Reports customer satisfaction surveys and customer complaints; mobile app reviews; and user-generated company reviews.
With the above insights and ranking methods, Insurify is able to offer car insurance shoppers insight into how various insurance providers compare to one another in terms of both cost and quality. Note, actual quotes will vary based on unique attributes including the policyholder’s driver history and their garaging address.