How High Should Auto Insurance Deductibles Be?


How high should auto insurance deductibles be? The risk is up to you…

Car insurance is all about risk. And very few industries spend more time analyzing risk and how it affects their balance sheets than car insurance companies.

They spend millions of dollars each year in risk assessment statisticians and actuaries whose sole job is to weigh all the risks each driver represents to the insurer. Will the driver have a high chance of getting into an accident or will the driver stay accident free? How old is the driver and how much experience does the driver have behind the wheel? What are the chances this driver will file a claim and will the insurer lose money on this driver?

All these questions and more involving risk are computed, added, subtracted and then finally churned out as an insurance premium quote. Sometimes the insurance premium really breaks the bank because the driver’s considered high risk. Other times it is significantly less due to the low risk posed by the driver.

Auto insurance deductibles pose a similar predicament except the questions of how much risk to take fall on the driver to decide. When a fender bender occurs, car insurance deductibles are what an insured driver and the insurer have agreed the driver will pay when a claim is filed; auto insurance deductibles apply to comprehensive and collision coverage and they are a standard part of an insurance policy. The deductible amount varies per policy but is usually decided by what the driver feels comfortable paying from his/her pocket before the insurer steps in to pay a claim. For instance, a motorist busts up his car causing $1,000 in repairs and policy’s deductible is $250. That $250 deductible is what the driver first pays before the insurer steps in to pay the rest – $750.

The general rule regarding auto insurance deductibles is that high ones – $1,000 for example – mean lower premiums. Conversely, lower car insurance deductibles, $250 for example, lead to higher car insurance premiums.

Significant savings can be had, sometimes up to 40% off a premium, through higher car insurance deductibles even though those savings could easily be wiped out if the driver is accident-prone.

Therein lies the predicament of car insurance deductibles. Does a driver gamble on a high deductible to pay less for insurance and can they afford the expense that may come with it after a wreck? What if they have several minor but expensive incidents in quick succession? Sometimes though there is no question as to the deductible amount if the vehicle is financed since the financing agreement will usually state it; leased vehicles and their agreements will also commonly and explicitly state the requirement.

So while risk and financing certainly play a part in deciding auto insurance deductibles, drivers have to consider other factors as well that play a big part in determining car insurance deductibles. For example, how old is the car that is being insured? In most cases, newer makes of cars (five years or less) are more expensive to repair than older ones. Researching the cost of repairs on a newer vehicle is another way of determining auto insurance deductibles.

Also, what type of driver is the insured? Do accidents happen to them more often than not? Car insurance deductibles are paid every time a claim is filed and paying high deductibles can easily drain the coffers so perhaps a lower deductible is in order for an accident-prone driver?

Budgets, however, are the ultimate decider on car insurance deductibles since it’s a choice between paying more up front (high premium, low deductible) or paying more on the back end (low premium, high deductible).

Driver’s that could be easily wiped out financially if an accident occurred should seriously consider paying more up front for coverage so as to have a lower deductible. Equally those that can easily afford choosing a policy with higher auto insurance deductibles should go that route to benefit from the savings.