When Should You Adjust Your Car Insurance Deductible?

Deductibles affect how much your policy costs; higher deductibles lead to lower premiums, while lower deductibles result in a more expensive policy.

The right deductible for you balances reasonably priced coverage with an amount you can afford to pay in the event of a claim. Whether you’re trying to trim your insurance bill or you want stronger protection from a sudden, massive car repair bill, adjusting your deductible can help you get there.

Understanding the Car Insurance Deductible

Car insurance deductibles are simply the amount your insurer requires you to pay toward a claim before it covers the remaining amount. For example, let’s say your policy has a $1,000 deductible for collision coverage, and you get into an accident that requires $5,000 in repairs. You will need to pay $1,000 of the repair bill, and your insurer will cover the remaining $4,000.

“A deductible in insurance terms refers to the amount of risk the insured retains for themselves, or - put more plainly - the amount they're willing to pay out of pocket before the insurance carrier steps in to pay the remainder of a covered claim,” explains Ezra Peterson, vice president of insurance and refinance at Way.com, a website on which consumers compare common car ownership costs.

Car insurance deductibles have a direct impact on the cost of your car insurance. Choosing a higher deductible means your policy will be more affordable, but you’ll have to pay more out of pocket for a claim. Choosing a lower deductible means your policy will cost more, but you won’t have to pay as much for a claim.

You can contact your insurer to request a change to your deductible at any time. The insurer may change your deductible the next day and adjust your premiums at a pro-rated amount for the policy year, or it may adjust your deductible the next time your policy renews.

When You Could Raise Your Car Insurance Deductible

“In today's world of rising repair costs and skyrocketing rates in some markets, increasing the deductible can help manage insurance costs, provided the deductible doesn't create an economic hardship in the event of a claim,” declares Peterson. Here are some scenarios in which it might make sense to raise your deductible:

Your car insurance is too expensive

If you can’t afford your car insurance premium or it’s taking too large a chunk out of your budget, you may want to raise your deductible to see some savings. There are other cost-saving strategies, including removing unnecessary coverage, looking for discounts, and taking safe driving courses.

You have emergency savings

An emergency savings fund provides a safety net for unplanned expenses without going into debt or neglecting other financial obligations. If you have a strong emergency savings fund with enough to cover your deductible, you may feel confident enough to raise your deductible.

You drive a less valuable car

If you drive an older or less valuable car, the cost to repair or replace your vehicle after a loss might not be much higher than the deductible itself. At this point, the savings you achieve by raising your deductible may outweigh the financial security of a lower deductible, since your insurance may not end up covering that much anyway. And if you no longer have a loan on your car and the vehicle isn’t that valuable, you may want to remove your comprehensive and collision coverage altogether.

You are a lower-risk driver

If you are a reliably safe driver with no history of accidents and few (if any) claims on your record, a higher deductible could be worth the gamble. And if you don’t drive your car that much, you don’t drive much on nights and weekends, and you avoid higher-traffic areas, your risk level is much lower than that of some drivers.

When You Could Lower Your Car Insurance Deductible

The primary reason to lower your deductible is to reduce your out-of-pocket costs when there’s a claim on your policy. The downside is that your policy can get more expensive, but there are some scenarios in which that might be the right choice:

You can afford a higher premium (but not a high out-of-pocket cost)

Contact your insurer and find out how much your premiums would change with a lower deductible. If you could easily pay the higher insurance bill, but you would struggle to meet the deductible in the event of a claim, you may benefit from a lower deductible.

You drive a more valuable car

Newer or more valuable cars cost more to repair or replace than older or less valuable vehicles and, therefore, are more likely to need repairs that exceed the amount of your deductible. If your car is especially valuable, you may want a lower deductible so that your insurer will cover a greater portion of the repair costs.

You are a higher-risk driver

If you have a history of accidents or several claims on your record, you could be more likely to experience a claim in the future. And if you put a lot of mileage on your car, drive in a region with heavy traffic or frequent severe weather events, or park on the street, your risk for claims is statistically higher. In this case, it might make sense to lower your deductible to reduce your future out-of-pocket costs.

What to Consider Before You Adjust Your Deductible

Before you contact your insurer to adjust your deductible, use these tips to make the right decision:

• Review your current policy. Check your policy’s current premiums and deductibles. Think about how much you can afford in terms of a premium, compared to how much you can afford to come out of pocket in the event of a claim. “A good test to apply is the ‘Rule of 5’, if the annual premium savings multiplied by 5 does not equal the increase in deductible amount, it's better to stay at the lower deductible. If the amount of savings exceeds the increase in deductible, it can be a long-term source of savings,” says Peterson.

• Check your emergency savings fund. Your deductible should be an amount you can afford to pay without going into debt or sacrificing other important financial priorities. Consider how much you keep in your emergency savings fund and how much you would be comfortable withdrawing for car repairs.

• Check your lender or lessor requirements. If you finance or lease your car, the lender or lessor may require you to have a deductible within a specific range. Check with your lender or lessor to learn the requirements.

• Consult with an insurance agent. To walk through these issues and more, you may want to speak with an insurance agent to run specific quotes and talk through the pros and cons of adjusting your deductible.

Conclusion

Choosing to adjust your car insurance deductible requires striking a balance between premiums and out-of-pocket repair costs. It might make sense to raise your deductible if you have strong emergency savings and you’re at lower risk for accidents or claims. Lowering your deductible might be the best move if you drive an expensive car, have limited savings, or are at a higher risk for accidents or claims. No matter what, you should choose a policy with a premium that lands in your budget and a deductible that you can afford to pay in an emergency.

Frequently Asked Questions

1. Can I change my car insurance deductible anytime?
Usually, yes. Many insurers let you adjust it mid-policy, but some apply changes at renewal.

2. Does changing my deductible affect all coverages?
Not always. Collision and comprehensive often have separate deductibles, and liability typically has none.

3. When is raising my deductible a bad idea?
If you need to go into debt or a financial scramble to cover it after an accident, the savings may not be worth it.

4. What deductible amount is “best”?

The best deductible is one you can pay quickly from savings while keeping your premium affordable.