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How to Choose the Right Deductible for You

Raising your car insurance deductible allows you to tweak your premiums to fit your budget, but doing so may come at a cost.

The balancing act of deductible versus monthly premium is difficult to master unless you understand what a deductible is and how it affects your policy.

What Is a Deductible?

Simply put, the deductible is your out-of-pocket expense should you have to file a claim.

Example: If you have a $700 deductible on your policy, and you cause an accident that results in $2500 worth of damage:

  • You’ll pay the first $700 dollars.
  • The insurance company will pay the additional $1800.

How Do Deductibles Affect Car Insurance Premiums?

When you choose a higher deductible, it can bring the cost of your premium down to an affordable level, and it is the dealmaker for many people making policy comparisons. If you are deciding between two plans, the amount of the deductible can sway you one way or another.

Example plan comparison:

Plan 1: $125/month premium with a $1,000 deductible.
Plan 2: $250/month premium with a $250 deductible.

With Plan 2, if you get into an accident, you’ll pay only $250 out of pocket. With the first plan, however, you must pay $1,000 dollars before the insurance kicks in to pay the remaining balance.

Accepting a higher deductible allows you to pay less each month, but if you need to file a claim, your budget will take a harder hit.

What to Consider When Choosing a Deductible

A policy with a low premium and a high deductible may look appealing but be the wrong choice for your situation. Ask yourself some questions before deciding on the amount of the deductible.

  • How much can you afford to pay out of pocket?
    • If you’ve chosen a $1,000 deductible to keep your monthly car insurance costs down, will you have $1,000 dollars in the bank at any given time? Remember, an accident can happen at any time. Be realistic about your budget.
  • How likely is it that you will get in a car accident?
    • If you have avoided an accident for many years and are a safe driver, a higher deductible is less of a risk.
  • How much do you drive the car?
    • If you live close to work and generally have low daily mileage, a high deductible can make sense; the odds you will need to file a claim are lower than a driver who travels many miles per day.

When to Rethink Your Deductible

Risk is the biggest indicator that you need to adjust your insurance deductible. If your risk factor changes in some way, you should respond by changing your deductible. For example:

  • You take a new job that requires you to drive a longer distance during peak traffic times.
    • You increase your risk of having an accident.
  • Your teenager gets his or her driver’s license.
    • Insurance rates go up, but so does your risk factor.
  • You move to a new location where crime rates are higher.
    • Increased crime equals increased risk of theft and vandalism claims.
  • You buy a new car that costs more to insure.
    • Since many new cars have better safety features, it could make sense to raise your deductible.

While raising your deductible will save you money each month, it is not always the right solution. If you get into a car accident after raising the deductible, you might wish you had left it alone.

Consider all the variables before deciding which deductible rate is best for you. Also, consider shopping around comparing quotes from multiple providers to find the cheapest car insurance.

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