Is A High Deductible On Your Car Insurance Worth It?

One of the most oft-repeated pieces of advice when it comes to saving money on your car insurance premiums is this: Raise your deductible!

(Some quick background to those who may just be purchasing a policy for the first time — your deductible is the amount of money you’re willing to pay out-of-pocket before the insurance company kicks in for the rest of the damages.)

While raising your deductible from, say, $250 to $1,500 will certainly cause those premiums to drop in a hurry, don’t just follow this advice blindly without first weighing your situation.


A Deductible’s Impact

Since the deductible is coming directly out of your wallet, it can have a significant impact on your lifestyle in the event that you ever need to use it. Let’s say you’re paying $200 for car insurance with a $250 deductible, but the number falls to $140 per month with a $1,500 deductible. On paper, that’s a savings of $720 per year. But what are you doing with that extra money? Are you putting it away into an emergency fund in case you’re ever in an accident? Are you using it to pay other bills? Are you wasting it? What happens if you’ve been irresponsible with the money, and then something happens that requires you to pay the $1,500 deductible, but the money’s not there?

(For most, the answer is “credit cards,” and these carry with them exorbitant interest rates that may keep you paying for a year or more.)

The size of a deductible will impact people in various ways, depending on income and sense of fiscal responsibility. Bottom line: if you don’t have $1,500 or more in a savings account, and you’re not very conservative with money, you should probably forgo the higher deductible in lieu of savings on the premium and opt for a lower deductible with a higher monthly payment instead.


Other Factors For Deciding Deductible Amount

Risk factors are huge when it comes to determining the amount of your deductible. This requires you to look at your driving record and determine the likelihood that you’ll be in an accident.

While we can sugarcoat much about life, driving records are pretty non-negotiable, so if you’re concerned that you’re looking at life through rose-colored glasses when it comes to your risk factors, just take a look at your past as it relates to your current policy.

Are you already paying high rates? Does your insurance company feel you’re a high risk? How many accidents have you experienced? How many were your fault? Do you have any physical maladies that prevent you from driving safely during specific times of the day or night?

Be honest with yourself because it could end up saving you a lot of money if you’re ever in an accident. Remember: the insurance company doesn’t pay until you do. If you can’t cover the deductible, then you may not be insured for very long, so it’s of crucial importance that you pick an amount that is manageable to your current budget.


In Summary

As you get ready to purchase a policy for the first time — or if you have an established driving record and are simply looking to switch insurance providers — take a hard look at your financial situation and your inherent or proven risks. Don’t chase the lower monthly premium if there is a reasonable chance that you will be called upon to fork over a high deductible amount in the event of an accident. Make the right call for you, your family, and your future. Good luck as you decide!

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