Auto Insurance Deductibles: How Much Should Your Deductible Be?

We would all like to save money when it comes to buying auto insurance, but, as my mother always told me, don’t be penny-wise and pound foolish. If you have never purchased auto insurance before, or even if you have, you should be aware that one of the important decisions you will have to make is at what dollar amount to set your collision and comprehensive deductibles. For these two types of coverage, the deductible amounts will be a determining factor in how much your premium is.

A central rule to remember with auto insurance is: the higher the deductible, the lower the premium--but the more you'll pay out of pocket in case of a claim; the lower the deductible, the higher the premium--but the less you'll fork over if you have an insured claim.

All auto insurance policies that cover collision and/or comprehensive have a deductible. The deductible is the part of your policy that you are responsible for paying. Auto insurance policies don't simply take care of all of your damages or expenses. You are required to pay for some of the damages, but that amount depends on your deductible. Deductibles vary by state, but are most often in amounts of $100, $200, $500 or $1,000. How does it work? If you are in an accident that causes $3000 worth of damage to your car, and your deductible is $500, you are required to pay the $500 and the insurance company will take care of the remaining $2,500. If you carried a $100 deductible, you would pay the first $100, and then your insurance would pony up the remaining $2,400.

How to decide
It’s not always easy to decide how much you are willing to pay now (for your premium) versus later (for your deductible) should you need to make a claim. Some of the factors to take into consideration are your:

• income
• credit
• savings
• comfort level
• age of your car
• driving history
• premiums

Think about your household income, credit available and your personal savings. If you were to experience a car accident today- what amount of money would you feel comfortable paying as your deductible? In other words, what do you have in the bank or available on your credit card, and how much can you get your hands on if you need to that won’t have a huge impact on you or your family? If your current deductible is higher than that amount--make it lower! If you could easily afford to pay more--you might want to increase your deductible in order to lower your premium.

Much of it has to do with risk. Are you willing to take the risk by having a large deductible that you won’t have an accident, or if you do, that you’ll be prepared to cover that amount? Are you comfortable with that, or are you going to fret over it?
So you see that which option you choose (high deductible/lower rates or low deductible/higher rates) will depend on what you can afford, but it also depends on how often you expect to need your insurance. While no one expects to have an accident, you know your driving history; if you tend to have a fender-bender of some sort every few months, you will likely want to pay the minimum amount and let the insurance company take on the majority of costs. For safer drivers who have an excellent driving record, it makes sense to go with the higher deductible and pay lower premiums instead.

Questions to ask yourself
Every so often, make sure to review your auto insurance deductible and consider these two questions:
• Has my household income changed since I set this deductible?
• Does this deductible still reflect the amount of money I would be able to pay in the event of a claim?

Purchasing car insurance doesn’t have to be confusing. Take the time to go over the numbers and figure out what you would be able to afford out of pocket in case of an accident and how much you can afford to pay on a monthly basis. A little research can go a long way. It’s also helpful to speak with the auto insurance agent who can give you a good idea of what the norm would be for your car’s age and your driving experience.