Many people mistakenly think that they can save money by simply increasing their car insurance deductible. While this is often a good strategy, it is not always a surefire way to lower your costs. You should closely compare the cost savings with the amount of additional risk that you will accept by increasing your deductible. In some cases, you will not see adequate cost savings for the amount of new risk you take by increasing your deductible.

Your car insurance deductible keeps you honest. It was invented by insurance companies as a way to mitigate the chance of people making false insurance claims. Your car insurance deductible requires you to make a partial payment in the event you need to file a claim. For example, if you are in a fender bender that causes $3,000 worth of damage to your car and you have a $500 deductible, you are required to pay that $500 and your car insurance company will pay $2,500.

Some people may try and save money on an accident’s repair cost by lowering their deductible. If you have a deductible of only $250, you can expect to pay a larger amount every month in the form of a higher car insurance premium. If you have a significant amount of savings in an emergency fund, you may be able to see considerable cost savings on your premiums by increasing your deductible to $500 or even $1,000. The insurance company recognizes your increased financial responsibility by lowering your car insurance premium payments.

Increasing your car insurance deductible does not always result in significant savings. In fact, raising your deductible from $500 to $1,000 may only save you $100 annually on your premium. In this case, it may not be worth the amount of risk, since it means that you would have to drive accident free for more than five years before the savings are worth it. This may be a tall order. You should weigh the costs and benefits before you make significant changes to your car insurance policy. You want to make sure that you will be adequately rewarded for taking on more of the financial risk from your car insurance company.