Car insurance deductible: should I pick $500 or $1,000?

Concerns & risks

Your policy is up for renewal and you need to choose a deductible without really knowing how it affects you.

Causes & evidence

A deductible is the amount you pay out of pocket on a claim before insurance pays the rest. It usually applies to collision and comprehensive coverage, which pay for damage to your own car, and is generally charged per claim. Liability coverage, which pays for damage you cause to others, usually has no deductible. The National Association of Insurance Commissioners explains that choosing a higher deductible generally lowers your premium, while a lower deductible raises it. If your car is financed or leased, the lender may set a maximum deductible you're allowed to choose.

Premiums depend on many factors besides the deductible, including your driving record, location and the car itself. Shop around at renewal.

Picking a $1,000 deductible to save money when you couldn't actually pay $1,000 tomorrow can leave a damaged car unrepaired.

What to do

1. Ask your insurer for the premium at each deductible level in writing.
2. Calculate the yearly savings of the higher deductible.
3. Divide the extra deductible amount by that saving to see how many claim-free years it takes to break even.
4. Check that your emergency fund can cover the higher deductible comfortably.
5. Confirm your lender's maximum deductible if the car is financed.

Common mistakes:

• Choosing a deductible larger than your savings
• Assuming liability has a deductible too
• Not checking the lender's limit

ReportSpeedMan tip: Comprehensive and collision can sometimes have different deductibles. A lower comprehensive deductible may cost little and helps with glass, theft or storm damage.

What I would actually do

if my emergency fund could easily cover $1,000, I'd choose the higher deductible and put the premium savings toward that fund.

The trade-off people miss: with a high deductible, small dents become out-of-pocket repairs, and with a low one, small claims can raise your future premiums anyway.

Proof that it worked

Your deductible is one you could pay tomorrow and your premium is lower.

Quick FAQ

Does liability have a deductible?
Usually no.

Can I change my deductible mid-policy?
Often yes; ask your insurer.

Is comprehensive deductible separate?
It can be.

Wrap-up: Pick the highest deductible you can pay without stress. If your savings are thin, the lower deductible is worth the small extra premium.

Wiki: Emergency Fund and Vehicle Recalls.

Car insurance deductible: read the originals

• NAIC: Consumer insurance resources
• CFPB: Auto loans