Should I Lower My Car Insurance Deductible?

By Jessica Bosari
After 13 years in personal and commercial insurance, Jessica Bosari now writes about personal finance, car insurance, risk management and related topics. Since 2008, she has been simplifying complex ideas through engaging articles for her readers.

Should I Lower My Car Insurance Deductible?

Lowering your car insurance deductible may sound like a good idea or a bad one depending on your perspective. A higher deductible can save you a lot on your car insurance premiums, but much of the time it will only save you a little. If it saves you a lot, you can sock the savings away in an emergency fund (with interest) to cover the higher deductible should an accident occur. If it only saves you a little, you have to decide how to build that emergency fund or whether you should just keep paying the higher premium.

Available Deductibles

You can choose car insurance deductibles ranging from $250 to $2,500. Most people carry a $500 deductible, figuring it’s the most they can scrape together quickly if an accident should happen. But you could probably up that to $1,000 with no ill consequences. You’ll enjoy lower premiums, and most likely, you won’t ever have to actually pay that money out-of-pocket. Why?

Your Deductible Is Already Lower Than You Think

Repair shops try to absorb your deductible into the repair costs so you don’t really feel it. You just bring them the damage appraisal, a copy of the insurance check, and ask if they will repair your vehicle for the value of the check. The shop may not be able to repair your car cheaply enough to absorb a $2,500 deductible, but most of the time, taking a hit of $500 or $1,000 to get your business is worth it to them.

This practice is truly a thorn in the side of insurance companies, and for claims adjusters it’s an annoying side effect of the claims process. They know that deductibles are designed as a way to share costs and deter accidents. Someone with a high deductible is likely to drive much more carefully than someone only risking $250. Plus, those with higher deductibles are less likely to make a claim for that small ding they got in the parking lot. So when insureds skirt the deductible by negotiating with the shop, it becomes a useless deterrent and the insurance company effectively ends up paying for the entire claim. Keep this in mind while you ponder whether to lower your deductible.

Deciding to Raise Your Deductible

You might save $30, $70 or $300 in premiums by raising your deductible. It depends on various rating factors. The only way to know for sure is to get quotes that show what the premium would be for different deductible scenarios. If a quote comes in showing that you can save hundreds by increasing your deductible by $500, it’s probably a smart move. It would only take a year or two of accident-free driving to make up for the potentially higher deductible payment you might have to make (and that’s assuming that a shop won’t absorb it) if you’re in an accident.

But if you’re only saving $50, it would take 10 accident-free years to make it a smart tradeoff. Statistically, odds are good that you’ll have some kind of accident during a 10-year span. Then again, much of the increased deductible will probably get absorbed by the shop anyway (see above). When the savings are low, this choice is a gray area. If you have to pay out-of-pocket and those out-of-pocket expenses exceed your premium savings, then it actually costs you more money to raise your deductible. In some sense it’s always a gamble, as insurance is a game of probabilities and risks to begin with.

One more consideration for you: the difference in premium between carrying a $1,000 deductible and a $2,500 deductible might not be significant compared to the $1,500 difference in your potential out-of-pocket costs. In general, once you go above the $1,000 mark, you may start to see diminishing returns from raising your deductible. Just make sure you actually do the math, which isn’t complicated, and the choice should be much clearer.

Deciding to Lower Your Deductible

So now let’s look at this in reverse. What if you lower your deductible? Well, it will most decidedly cost you more money in premiums. But if it only costs you a little more, it could be worthwhile after an accident. It’s another gamble, but this time you’re sort of betting that an accident will happen. It’s like betting against yourself. You only save money if you have an accident. That doesn’t make a lot of sense to me. And if you are able to get the shop to take the amount of the insurance check for repairs after an accident, you’re just throwing away extra premium dollars with a lower deductible. Negotiating with the shop accomplishes the same thing without an increase in premium.

What about Vanishing Deductibles?

Nationwide offers something called a Vanishing Deductible. In exchange for a slightly higher premium, you’ll see your deductible drop by $100 every year until there is no deductible at all. But just like with lowering your deductible the traditional way, you’re essentially betting that you’ll have an accident. Because if you don’t make a claim, you’re just paying a higher premium and getting no tangible benefit. It just doesn’t make sense.

It seems that insurance companies bet on the fact that most people don’t realize the truth about car insurance deductibles. Once you have the repair check, as long as you get the repairs completed as prescribed in the damage appraisal, your end of the bargain is fulfilled. You don’t have to ‘pay’ the deductible if you can find a shop that will absorb the cost. And in a tight economy, that’s not very hard to do.

The only thing shops cannot do is misrepresent the amount of damage on a car in order to get the insurance company to pay a higher claim amount. But as long as damages are reasonably represented in the repair estimate, it’s up to the shop to decide whether it will give up part of its profit in exchange for your business.

Understand that not every shop will go along with giving you a discount so you can get out of paying your deductible. But most often, you can at least save a good chunk of it.