How Do Deductibles Affect Auto Insurance Premiums?

Motorists can use deductibles to adjust immediate car insurance premium costs and possible out of pocket payment in case of claims based on their risk tolerance. Everyone has a different risk tolerance and budget and this may at least offer options to people. Depending on the company, current and new level of deductibles and their risk levels, policyholders can save between 7 – 28% on their overall premiums by increasing vehicle insurance deductibles. So, it is always worth getting quotes for different levels and see how much the costs are affected. This way, you can make a decision based on real cost and benefits analysis.

Although other coverages may have it as well, deductibles are mainly associated with Collision and Comprehensive coverage that provide physical damages protection for your car. So, any adjustments on automobile insurance deductibles would affect the cost of physical damages coverage. Typically there is no deductible on Liability coverage.

Interestingly several studies find that initial increases have the potential to provide the highest level of savings but keep increasing deductibles may not be as beneficial. For example, if you increase your car insurance deductibles from $250 to $1,000, you may save 39% on your physical damages (Collision and Comprehensive) coverage. However, if you continue and increase it to $2,000, you would save 24% further for an additional $1,000 out of pocket payment commitment. This may be more visible with some companies. So, you should always base your decision on actual quotes, as every company has a different way of looking at risk and deductibles.

Another important point to remember is that you may achieve larger vehicle insurance savings by increasing Collision deductible because Collision coverage costs on average 3 – 5 times more than Comprehensive coverage, depending on the insurer and state. So, it may make more sense to increase deductibles on Collision coverage only and leave the Comprehensive coverage deductible as it is.

This way, you get the largest possible savings and you only make higher out of pocket payments if you have an accident claim. For all the other claims like fire, theft, vandalism, flood, storm and accidental damages you pay a lower figure. So, it is a strategy to consider and another quote to get.

Mature motorists with good driving records, credit score and live in a safe zip code would pay the lowest premiums and therefore they may not save as many dollars as a high-risk driver who is paying large sums to insure their cars. Nevertheless, high-risk drivers would naturally be more likely to make a claim and pay the deductible even more than once in a policy term.

Often people may have a dilemma of dropping Collision and Comprehensive coverage, if their vehicle isn’t expensive but still has some value. In such cases, another option may be increasing Collision and Comprehensive auto insurance deductibles so that additional premium they have to pay to protect their own automobile is lowered as much as 39 – 63% on average, depending on the insurer, state and how far they can increase.

By adjusting their deductibles, individuals may be able to afford to maintain full coverage while reducing their costs. This means they would have to pay more out of pocket if they ever file a claim, but it allows them to make claims for larger losses, such as total losses or theft. If they were to drop the coverage altogether, they would have no option to file a claim in such situations.

For example, if your car is valued at $6,000, and the extra cost for insuring it against potential physical damages is $1,200, it might be reasonable to consider dropping Collision and Comprehensive coverage, adhering to the 10% rule, which suggests that the premium for these coverages should not exceed 10% of your car’s value. However, if you can raise your deductibles from $250 to $1,000 and this adjustment reduces your additional premium by $468, you may find it more manageable to pay the now reduced extra premium of $732.

Yes, you will have to pay $750 more out of pocket if you have a claim but you can get $6,000 – $1,000 = $5,000 if your vehicle is totaled by your insurer. And older automobiles are more likely to get totaled even after a minor damage.

As you can see, vehicle insurance deductibles are power tools to adjust the level of risks you are willing to take if you ever have a claim and amount of premiums you are willing to pay today. And you have the option of choosing a variety of levels that will affect the premiums more or less.

Furthermore, you have the option of paying a bit more on auto insurance so that you don’t have to pay as much deductibles in case of accidents. This may be a valid strategy as well since deductibles are paid for each and every claim. If you are worried that you may have more than one claim in a year, you would actually want to keep the car insurance deductibles as low as possible.

It is best to get a few quotes for various levels of deductibles and from a few different vehicle insurers so that you can see the real effects of increasing or decreasing deductibles and make a choice based on solid data.