High Deductible vs. Low Deductible Auto Insurance

When shopping for auto insurance, is it better to have a high or low deductible. Financial experts will tell you that a higher deductible is best since this will lead to lower monthly payments. However, this is only a good option if you can afford to pay the entire amount of the deductible.

When you’re weighing the amount of the deductible, there are a few factors to consider: your finances, driving record, and the cost of the policy. This overview may help you decide.

Choosing a Low Deductible

If you’re on a tight budget and simply can’t afford unexpected expenses, then a low insurance deductible is going to give you more peace of mind. Even a minor problem with your vehicle can lead to a $500 repair that may not be in your budget. When you want peace of mind, then you’re probably better off making the safe choice of having a low deductible. This means that you won’t have to pay much more than your regular premium if your car needs some help after an accident.

However, this does mean that you’re going to pay more for your monthly premiums. If you’re a safe driver and live in an area where accidents are not commonplace, then this may be an unnecessary expense. You will want to choose a lower deductible if you’re leasing or financing your car. Most of these agreements have it mandated that you need a low deductible so look into the requirements if this is the case. If you’re driving a car that’s at the end of its usable life and you own it, a low deductible really doesn’t make sense though.

Choosing a High Deductible

The primary reason why people choose a high deductible is that it will lower their monthly premiums for the auto insurance policy. Sometime the difference can be dramatic. For example, if you raise your deductible from $200 to $500, then your premium may decrease by up to 30%. This is significant for most people. Doubling it to a thousand dollars may reduce it even further.

While these numbers sound appealing, you’ll have to look into your own auto insurance policy to determine what you’ll actually save with a high deductible. After all, everyone’s policy is going to be slightly different based on their unique situation. Additionally, the savings you can expect will only apply to your collision and comprehensive insurance. You can talk to your agent or shop online with different deductibles to determine how much your premium will be affected.

Then take a look at your own personal finances and determine how long it will take for your savings to equal the cost of the deductible. If you save $50 a year on premiums by raising your deductible by $250, it will take five years to equal what you’ve spent.

Keep in mind that there isn’t any one correct option which is why most people end up with a moderate deductible in the end. Try a few different options and see how much you’re actually saving and how much you can afford to pay in the case of an accident.

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