When buying car insurance, understanding the different variables is crucial to maximizing savings over the long haul. The deductible you choose is one of these variables, though many people are unsure how high this payment should be. Additionally, while a high deductible may be the right option for one person, it may not be for another.
In this post, our professional team at Miller Hanover Insurance discusses the pros and cons of choosing a higher auto insurance deductible. We also explore the factors you should consider when choosing a deductible.
What Is an Auto Insurance Deductible?
An auto insurance deductible is the amount you must pay out of pocket when filing an insurance claim. Deductible levels for car insurance generally range from $100 to $2,500, but carriers usually set deductibles at $500 or $1,000. Your insurance company will cover the remainder of your claim amount.
For example, suppose you accidentally drive into a lamp post and repairing your vehicle’s damage costs $1,200. If you want your insurance company to handle the repair, you need to file a collision claim. If your deductible is $500, you must pay this amount upfront, and your claim will be for the remaining $700.
Choosing a low deductible may appear to be the best choice, as you’ll pay less when filing a claim. However, like your driving history, car’s make and model, and age, your deductible is a factor that impacts the premium you pay.
If you have a higher deductible, your annual premiums will be lower. On the other hand, a low deductible will increase your annual premiums.
In other words, if you choose a lower deductible, you force your insurer to pay more when you have a claim. Your insurer will charge you more for your coverage to offset this higher risk.
Types of Car Insurance Coverage with Deductibles
An auto insurance policy typically includes multiple types of coverage, though only certain types require a deductible. For example, liability coverage doesn’t have a deductible as it doesn’t cover your vehicle repairs or medical bills. The types of coverage in your auto insurance policy that require deductibles include:
- Comprehensive coverage: This coverage pays to repair damages resulting from non-driving perils, such as hail damage, vandalism, or theft. Insurers typically set these deductibles at $500 or $1,000.
- Collision coverage: These policies cover vehicle damage due to an accident, irrespective of who is at fault. Your policy will likely offer a deductible selection of $500 and $1,000 for this coverage.
- Uninsured or underinsured motorist coverage (UM/UIM): This coverage pays your damages if the person responsible for your accident doesn’t have sufficient liability coverage. The deductible for this coverage typically ranges from $100 to $1,000.
The Pros of a Higher Auto Insurance Deductible
What are the benefits of higher auto coverage deductibles?
Low Insurance Premium
A lower insurance premium is the most significant benefit of choosing a high auto insurance deductible. If you go without filing a claim for several years, these lower premiums can result in significant savings.
Emergency Fund Contributions
By saving more on your premium, you can contribute more to an emergency fund that accrues interest. You can use these funds to cover the higher deductibles if you claim.
Claim Deterrent
Setting a high deductible can discourage you from filing a claim, which keeps your insurance rates low. For example, suppose your deductible is $1,000, and the damage to your vehicle after a collision is $500. In this case, filing an insurance claim doesn’t make sense, as your deductible is higher than the claim amount, and you’ll cover the damage out of pocket either way.
The Cons of a Higher Auto Insurance Deductible
Setting a high deductible can carry several risks:
Unexpected and Sizable Expenses
Most people don’t have the funds to pay $500 or $1,000 towards an unexpected vehicle repair. The primary goal of an insurance policy is to ensure that you don’t incur a sudden and unforeseeable expense. Choosing a high car insurance deductible can defeat this purpose.
High-Interest Risk
If you don’t have a sizable emergency fund, you may need to use your credit card to pay a deductible. In addition to the significant upfront expense, you will also pay high interest.
Vehicle Repair Delays
A high deductible can lead to repair delays if you have insufficient funds to cover this out-of-pocket payment. In the case of extensive vehicle damage, a high deductible may leave you stranded without a way of getting from A to B.
Considerations When Choosing a Deductible
Before setting a deductible on your car insurance policy, consider the following:
Is a Deductible a Lien or Lease Requirement?
If you have a lien or lease agreement on your vehicle, you may not have an option when choosing a deductible. In most cases, lease agreements or liens require a deductible that is no higher than $500.
How Likely Is a Future Claim?
The more likely you are to claim, the lower your deductible should be. For example, suppose you have a clean driving record, live in a quiet area, or use public transport for your daily commute. In this case, your risk of an accident is low, and a higher deductible is best to reduce your insurance premiums.
Find The Right Auto Insurance Policy With Miller Hanover Insurance
At Miller Hanover Insurance, we provide a quick, straightforward process for finding and comparing car insurance quotes. As an independent insurance agency, we offer quotes from many reputable insurance companies, so you can find a policy that fits your unique auto insurance requirements.
If you need help finding the best car insurance policy or want to make an informed decision about your deductibles, we can help. Our friendly agents are standing by to answer all your questions. Visit our website or call us to ensure that you have sufficient coverage on the road.