Is Raising My Deductible Really the Only Way to Get the Best Auto Insurance Rates?

Reader Question: People always say to raise deductibles to save money on auto insurance, especially collision deductibles, and everyone says in order to get the cheapest rate to get a $1,000 deductible (I have a $500 deductible now). I’m a new college graduate looking for a good position and want to save money, but at the same time, I don’t know if I feel comfortable with having such a high deductible to pay if I had an accident. Fortunately, I have a good driving record, so I’m hoping that helps regardless of deductibles I choose. Is the ‘higher deductible tip’ true?

You can find a hundred columns that give advice about saving money and buying from a cheap auto insurance company. Typically they advise you to increase your deductibles to $1,000 and take off any extras like rental, roadside, uninsured, and additional features. But let’s examine it from another angle.

If you have a good driving record and you have maintained liability insurance with no gaps in coverage for a while, you are most likely getting the best rate possible if you’ve shopped around for a new insurance policy lately.

That said, if you have taken any of the advice of some insurance “experts” and automatically chose the $1,000 deductibles, you may end up losing a good bit of money in the long run. Here’s why.

If you have a newer model car and/or a car loan, there is no getting around needing full coverage that includes the collision and comprehensive features with deductibles. If you have taken any past advice and automatically chose $1,000 deductibles, call your cheap auto insurance company and ask what the difference in rate would be if you dropped your collision to $500 and your comprehensive deductible to $100. Yes, that is a one and only two zeros! You might try it also at $250.

If you have that great track record with driving and continuous insurance, you might be shocked to discover that you have only added $10-$20 to your monthly bill by dropping your deductibles. At most, that is $240 for the entire year. If you had even one incident where you had to place a collision claim with your cheap auto insurance company, you have actually saved $760. You would have to go a long time without a collision claim to make that $1,000 deductible worthwhile. Certainly it is much easier to come up with $500 than it is $1,000.

It would add insult to injury to have a storm damage your car or a deer jump into your car and have to pay $1,000 to fix it when you had no control over the loss. It would take you many years to make the $1,000 comprehensive deductible worthwhile. Comprehensive claims are more likely to happen than any other claim, so you really don’t want to carry a high deductible on that if possible. I view it with this logic: your comprehensive coverage pays for damage you incur through no fault of your own, so do you really want to pay $1,000 for something that’s not your fault? This is especially true when you consider the fact that comprehensive claims happen more often than collision claims (hopefully, that is, as collision claims will raise your premium significantly).

If you have more than one comprehensive claim in a year, you’d be out $1,000 every time if the cost to repair your car was over $1K, or you’d be paying all on your own if the repair costs are under $1K. That can be especially sickening if the claim ends up being something like $800–meaning you were only $200 away from not having to pay out of pocket. The bulk of insurance premiums are paid for collision and liability coverages anyways, so raising your comprehensive claim is often superfluous and will barely make any difference.

If you’re going to raise a deductible at any time, raise your collision deductible and not comprehensive though. Ideally, it’s best to keep collision deductibles at $500 and comprehensive at $0 to $250 (at the very, very most). The best thing you can do is re-evaluate your insurance and your vehicle’s value annually as well. You don’t want to pay out more in premium than what your car is worth or if your deductible is close to its value–bank the money for a down payment on a new car in case your car ever was deemed a total loss.

Just because people say you save money with a $1,000 deductible doesn’t make it true. The only time that would really help you out is if you had a lapse of insurance and/or incidents on your driving history that put you in a high-risk insurance group. If you absolutely had to have full coverage, then the $1,000 deductibles might need to be considered, but even then, play around with the deductible choices and costs before you settle on the one that is best for you. Even non-standard auto insurance companies that specialize in high-risk can still possibly keep your rate manageable with $500 deductibles.

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