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Auto insurance deductible vs premium, a case study

By SmartCoverage Team on March 21st, 2018

In this post, we're going to look at the auto insurance deductible, explain it, then show you how different your premium will be if you adjust your insurance deductible from low to high. You'll also get some tips on saving even more money when you combine a higher deductible with other discounts available to you.

What is an auto insurance deductible?

An auto insurance deductible is a portion of the cost that must be handled by the policyholder.

In the event of an accident, the deductible dictates how much you must pay out of pocket before your insurance company will step in to cover the rest of the costs. In essence, you will be refunded for the cost of the repair once you subtract the cost of your deductible.

The deductible exists so that drivers still maintain some of the responsibility for their vehicle, and works to keep insurance costs low for everyone.

If the insurance company had to pay for every scrape and scratch, insurance costs would inflate drastically because they would always have to be ready to help you out. As it stands, insurance fraud already inflates the cost of insurance enough.

Your deductible

To decide on your auto insurance deductible, you first need to thoroughly reflect on your own personal finances. Further, you need to understand your location, where you park your vehicle overnight, and which avenues you use the most to get from point A to point B.

Do you live in a high crime or high traffic area? If so, you’ll be riskier to insure and the likelihood of you filing a claim increases.

High or low?

If your area and driving habits make you more likely to have a no-fault claim, consider lowering your deductible, so you won’t have to pay out of pocket every time.

If the issue is actually with you, as a dangerous or high-risk driver, you should raise your deductible. The higher deductible keeps the onus on you and should be a reminder to drive more carefully.

Also, how expensive is your car? You should have a good idea of how much your vehicle parts will cost to repair. If you have an expensive or rare car, your parts will be more costly to find and they might require particular service people. These types of cars will raise your insurance premium.

Claiming for the deductible

The more claims you make, the higher your premiums will rise. If you’re making enough claims during a season, you’ll be considered a high-risk policyholder and your insurance rate will reflect that risk.

Though it may seem counterintuitive, it doesn't make sense to file for every accident you encounter. You may wish to have comprehensive coverage and collision coverage at different deductibles if you think one type of claim will happen more often than the other.

Emergency fund

To ensure that you don't have to file for every little claim that comes your way, you need to invest in a personal emergency fund.

If you have an emergency fund or a savings account that you frequently invest in, you should be able to increase your deductible above the bare minimum. If you have a deductible on the higher scale, at $1000, your emergency fund should have enough money in it to cover a loss that costs between $100 and $999 to repair.

Method of case study

To see how much of a difference the deductible makes in the overall auto insurance premium (annual cost) we tested a quote tool, which you should do as well when you’re shopping around for insurance.

We used a middle of the line car, a Nissan 4DR, and an experienced driver with a clean driving record for our test. We used two different genders.

Results

For the woman, the price difference between a $500 deductible and one worth $1000 was only about $3 per month. For a male of the same disposition, the difference between the lower and higher deductible was $4 per month.

That equates to savings of $36 to $48 per year by choosing a higher deductible. This is probably on the lower end of the savings scale since you can receive multiple discounts for a myriad of things including safe driving, bundling, etc.

The savings you get by increasing your deductible is just a start. To take advantage of these savings, you must make sure you have an emergency fund ready to pay for minor unforeseeable circumstances.

The higher deductible can be combined with other discounts that save you more on your premiums afterwards. You will need to talk to your insurance broker or provider in order to find out which discounts you qualify for.

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