Follow These Steps to Choose the Right Auto Insurance Deductible

August 24, 2021

Choosing the right auto insurance deductible is almost as hard as choosing the right insurance company. Because the deductible plays a role in your premium, you’ll want to pay close attention to the details. When you ask for quotes for auto insurance, you may receive a quote for the insurance company’s standard coverage. Don’t take it at face value, though. Ask for specific quotes based on the deductibles you want.

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Keep reading to learn how to decide which deductible is right for you.

What Can you Afford?

The most important factor is what you can afford. Pay attention to more than just the premium – look at the deductible too. It doesn’t do you any good to take an auto insurance deductible of $1,000, if you can’t afford it. Remember, the deductible comes into play if you have to make a claim on your auto insurance. The last thing you want is to suffer financially after paying premiums all along. You want coverage that will protect you should something bad happen.

Look closely at your budget and your emergency fund as you determine the right insurance deductible. Ask yourself what you can comfortably afford should you need to make a claim. This is the number you should use as you ask insurance companies for quotes.

What Type of Car do you Drive?

Next, you should determine the value of your car and how it affects the deductible. It doesn’t make sense to take a deductible that is close to the value of the car. This happens with older cars that you still insure to the max. Drivers often make the mistake of carrying high deductibles. Then when they have to make a claim, they pay out a large portion of what the car is worth, for a car that may or may not last them much longer.

On the other hand, if you drive an expensive car, you may want that higher deductible, as the premiums are usually higher on newer, higher value cars. Repairs on expensive vehicles are often more expensive than lower value cars. This translates into higher premiums, as the insurance company takes a higher risk insuring your vehicle. You can save money regularly by taking the higher deductible (assuming you can afford it should you have to make a claim).

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What’s the Break-Even Point?

As you shop around, make sure you ask for quotes for different deductibles. You already know that a $1,000 deductible will have lower premiums than a $500 deductible, but there’s one more step. You should determine how long it would take you to recoup the cost of the higher deductible.

Here’s how:

Calculate the difference between the two deductibles. For example, the difference between the $500 and $1,000 deductible is $500. If the higher deductible lowers your premium $20 per month, it would take you 25 months to make up the difference in the deductible. That’s a decent break-even point, as anything less than 3 years is considered good.

If, on the other hand, the higher auto insurance deductible would only save you $5 per month, it would take you 100 months to break even. That’s probably not worth it. You would be better off taking the lower deductible and paying the extra $5 per month.

Determine Your Risk

Finally, you should consider how likely you are to have to file a claim. While no one can predict when they will experience a car accident, there are certain factors that increase your risk of a claim:

  • Long daily commutes to work or school
  • Driving during peak hours (rush hour)
  • The accident rate on the routes you typically drive
  • The hazards that are present in your area (deer, construction, etc.)
  • Your driving record

If you consider yourself a high-risk driver, you have a decision to make. A lower deductible means you’ll have to fork over less cash every time you make a claim. But, if the insurance company agrees that you are a high-risk driver, they may charge you higher premiums. Taking the higher deductible could lower those premiums, which brings you back to the break-even point calculation.

You have a lot to consider when choosing the right auto insurance deductible. Every driver will have different reasons for choosing their deductible. Consider all of the points above as you decide which is right for you. Don’t forget, you can always change the deductible should you decide you made a mistake. You just need to reach out to your agent to discuss your options.

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