How much is your car insurance deductible? For many drivers, $500 seems to be the going rate, although some are as low as $250 and as high as $1,000 or more. With so many options, it can be difficult to know which one is right for you. The lower deductible seems most attractive, but is it worth it? Today, we are comparing low deductibles versus high deductibles and breaking down the advice car insurance agencies offer to help you make a choice.
What is a Deductible?
A deductible is the amount of money you agree to contribute to the repair or replacement of your vehicle after an accident. To better understand, consider the following example:
You cause an accident that results in damages to your vehicle that will cost $2,000 to repair. With a low deductible, you might pay $250 toward the repairs while your insurer covers the remaining $1,750. With a higher deductible, your responsibility in the claim might be $1,000, leaving $1,000 for the insurance company to pay.
Keep in mind that deductibles typically only apply to claims made against your own vehicle. You might even have separate deductibles for different types of coverage, such as collision and comprehensive. Other coverage types, such as bodily injury and property damage liability, do not require a deductible for claims.
Pros and Cons
A low deductible is most desired if actually need to file a claim since it means you will pay less money out of your own pocket toward the cost of your loss. Of course, this benefit comes at a price. Drivers tend to pay much more for insurance with a low deductible than they would with a higher one. Switching to a higher deductible affords the greatest upfront savings. However, the cost of filing a claim could induce sticker shock.
Can You Afford a Higher Deductible?
If you have extra cash laying around in a well-funded emergency savings account, you can probably safely raise your deductible without worrying about how you might pay for it. If you are a cautious driver, taking on a greater risk tolerance could pay off in the long run so long as you aren’t involved in any accidents. Assuming an annual savings of $100 by raising your deductible from $500 to $1,000, it would take you five years to break even on the added cost of a claim.
It’s Up to You
In the end, the decision is yours. You can consult with your independent insurance agent for advice, but there is no way of knowing if you will need to file a claim. If you are uncomfortable carrying such a high deductible or would cringe at the thought of paying so much out of pocket for a claim, you might be better suited for a lower deductible. On the other hand, a higher deductible might be more appropriate if you are attracted to the upfront savings on premiums and the ability to contribute those savings to your emergency fund.