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Car Insurance Deductibles: $250, $500 or $1,000? How Much Deductible Do You Need?

Ron Trumbo - Insurance Editor
Ron Trumbo
Insurance Editor
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Your car insurance policy is essentially a finance tool, and the deductible is one the most important parts that determines both the cost, and how much you’ll pay in the event of an insurance claim. Deductibles make your policy a shared-risk proposition with your insurance company; if you’re in an accident, you’re both going to pay.

Auto Insurance Deductibles: What Can You Afford to Pay?

According to the US National Highway Traffic Safety Administration, nearly 25% of vehicles will be damaged in a car accident every 5 years. Coupled with the fact that there are over 6 million accidents every year, the reality is that insurance claims are common and car insurance is critical. So if you were in an accident, how much could you afford to take out of your checking or savings account? This is the first part of the deductible decision. If you needed $500 right now, could you find it? If the answer is simply “no,” then you’re better off with a $250 deductible. Don’t let this be the only factor in your decision though, because you should focus on making your auto insurance policy cheaper, instead of simply making your accident more affordable.

$250 Deductible vs. $1,000 Deductible: Real Insurance Savings

According to the Insurance Information Institute, raising your auto insurance deductible from a very low $200 to $500, can lower your policy approximately 15% to 30%. If you used Pennsylvania as an example where the average policy is $951*, the savings could be about $140 to $280 a year. The Institute continues to report that raising your deductible from $200 to $1,000, could return policy savings up to 40%. That would be a savings of nearly $380 on that same Pennsylvania policy. Note that this a very simplified example only used to illustrate potential savings only. To realize such savings, you need to work with a qualified insurance agent.

Comparing Insurance Quotes: Ask for 3 Different Insurance Rates

When you are speaking with insurance agents, ask them for 3 different insurance rates on the same policy for 3 different deductible amounts: $250, $500 and $1,000. This will help you identify the real policy savings with different deductible amounts.

Low Deductible vs. High Deductible: Creating Point of Indifference

Not all car accidents are serious enough to require an insurance claim. For example, imagine if you backed into a parked car that had no passengers and the damage to either vehicle was superficial paint damage. If you’re lucky enough, you might be able to find a reputable body repair shop that could fix everything for $800. Now: imagine if your policy deductible was $500. Would it make sense to pay $500 out of pocket, just to have your insurance company pick up the remaining $300? Before you answer, recognize that if you made a claim, your insurance rates could possibly increase at the end of your policy's term, and finding cheap insurance rates from other insurance companies could be harder with that claim history. If you have a bad driving record and perhaps an insurance claim within the previous year or so, it may make sense for you to carry a higher deductible to keep your policy rates in control and keeping you from making small claim. For very minor claims, ask yourself what your point of indifference is when making a claim. Often, a $1,000 deductible can really help define this point of indifference. Most importantly, speak with your insurance agent before you ever pay for damage out of pocket in lieu of an insurance claim; you never know if there may be medical claims in the future.

Find a Way to Get More Coverage

The savings realized by increasing your deductible can help you secure additional coverage. See InsuranceLoco’s article: How Much Auto Insurance Coverage Is Enough?

* Average insurance rate source NAIC

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