Should I Have A $500 or $1000 Auto Insurance Deductible?

1. a. has a higher monthly bill, but pays less out of pocket in the

Dec 7, 2020 — In auto insurance, a lower deductible means the customer _____. a. has a higher monthly bill, but pays less ou… Get the answers you need, 2 answers  ·  6 votes: Answer: A. Has a higher monthly bill but pays less out of pocket in the even of an accident.Step-by- (1)

Mar 10, 2020 · 2 answersIn auto insurance, a higher deductible means the customer b. has a lower monthly bill, but pays more out of pocket in the event of an accident.(2)

In auto insurance, a lower deductible means the customer _____. A.) has a higher monthly bill, but pays less out of pocket in the event of an accident.(3)

How will your car insurance deductible impact your rate?

Based on paying $420 for collision coverage on a six-month policy, the chart below shows how adjusting a deductible can change the coverage cost. Increasing your deductible from $100 to $250 provides the greatest jump in savings, while going from $1,000 to $2,000 offers the lowest amount of savings.

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How to Choose Your Car Insurance Deductible

"Deciding your deductible is very much a subjective judgment," said W. Michael McBride, president of Mason McBride Inc., which provides casualty insurance in Michigan. When choosing your deductible, think mostly about three elements:

  • Your vehicle’s value
  • Your ability to withstand an emergency financial loss
  • The effect of various deductibles on your premium

What Is the Value of Your Vehicle?

Before you decide on your deductible, figure out how much your vehicle is worth to your insurance company. Weigh the value of the car against the cost of potential repairs. As the car's value comes down, the chance of a total loss goes up—meaning it may not be worth buying optional coverages. For example, the Kansas Insurance Department recommends carrying only liability coverage on cars worth less than $3,000.

But due to a current shortage of used vehicles, McBride pointed out that you might also want to consider how important your car is as a means of transportation. If you wouldn’t be able to get to school or work without your car, you may want to continue carrying comprehensive or collision coverage to pay for repairs.

What Does Your Emergency Fund Look Like?

Accepting a higher deductible in exchange for a lower annual premium is a common way to save money on insurance. But think carefully about how much you could pay out of pocket to repair a car. If you don’t have an emergency fund, could you come up with $500 on the spot for repairs? How about $2,000?

If you’re not sure you could come up with the cash right away when you need it, you might prefer the peace of mind of a lower deductible.

What’s the Cost of Various Deductible Options?

According to McBride, there's a rule of thumb: When considering deductibles, review any diminishing returns. If the cost of a policy with a $2,500 deductible isn't much lower than a policy with a $1,000 deductible, the savings may not justify the potential challenge of having to come up with an extra $1,500 after an accident.

You may be able to choose different deductibles for different types of coverage depending on how you assess your own risk or cost concerns. People often choose a lower deductible for comprehensive than collision insurance, McBride said, as comprehensive coverage is generally cheaper than collision.

How deductibles work

For dollar amount deductibles, a specific amount would come off the top of your claim payment.

For example, if your policy states a $500 deductible, and your insurer has determined that you have an insured loss worth $10,000, you would receive a claims check for $9,500.

Percentage deductibles generally only apply to homeowners policies and are calculated based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from any claim payment. In the event of the $10,000 insurance loss, you would be paid $8,000. In the event of a $25,000 loss, your claim check would be $23,000.

Note that with auto insurance or a homeowners policy, the deductible applies each time you file a claim. The one major exception to this is in Florida, where hurricane deductibles specifically are applied per season rather than for each storm.

Deductibles generally apply to property damage, not to the liability portion of homeowners or auto insurance policies. To use a a homeowners policy example, a deductible would apply to property damaged in a rogue outdoor grill fire, but there would be no deductible against the liability portion of the policy if a burned guest made a medical claim or sued.

 

How do car insurance deductibles impact premiums?

Bankrate’s study of deductible levels in over 35,000 ZIP codes nationwide confirmed that, generally, the higher your deductible, the lower your premium. Because you are willing to pay more in the event of a claim, insurance companies charge you less, though what may be surprising is that the difference is not always significant. Keep in mind, too, that our study focused on drivers with clean driving records. If you have an accident or ticket surcharging on your policy, you may see bigger savings by increasing your deductibles. While your deductible level can be a tool to help you control your insurance premiums, it isn’t always the most effective way to save on your car insurance.

You may be tempted to choose high deductibles to save on your premium, but you should always consider how easily you’ll be able to pay the amount after a claim. If you choose a $1,000 collision deductible, but might struggle to pay $1,000 out of pocket if you damage your car, a lower deductible might make more sense. It may also be worth considering that you may be more tempted to file claims if you have lower deductibles, which can raise your rates over time.

The deductible levels you choose will depend heavily on your financial circumstances. If you can afford to pay a higher amount out of pocket, you may choose higher deductibles to lower your insurance costs. But if you would struggle to pay your deductibles, that can be a good sign that you need to choose a lower option, even though it can mean slightly higher premiums.

Average full coverage premium by deductible amount

Comprehensive/collision deductible ($ amount) Average annual full coverage premium Annual premium impact
100/500 $1,806 +$132
250/500 $1,725 +$51
500/500 $1,674 $0
500/1,000 $1,523 -$151
1,000/1,000 $1,459 -$215

*Premium impact is adjusting deductibles from $500 comprehensive and collision deductible amounts

Small changes to your deductible levels — like changing from a $250 comprehensive deductible to a $500 comprehensive deductible — only moderately change your premium. However, larger changes can have a bigger impact. If you have a $100 comprehensive deductible and a $500 collision deductible, increasing to $1,000 for both could save you nearly $350 per year, on average.

What is the relationship between the deductible and premium?

Most often, a lower deductible means higher monthly payments. If you have a low deductible, you have more coverage from your insurance company and you have to pay less out of pocket in the case of a claim. A higher deductible means a reduced cost in your insurance premium.

For example, say your policy has a line of $5,000 in coverage. A low deductible of $500 means your insurance company is covering you for $4,500. A higher deductible of $1,000 means your company would then be covering you for only $4,000.

Since a lower deductible equates to more coverage, you’ll have to pay more in your monthly premiums to balance out this increased coverage.

A survey commissioned by InsuraQuotes found that an increase in deductible from $500 to $1,000 had an average of 8-10% reduction in premium costs. This was dependent upon the state, though, where Michigan only saved 4% for the deductible raise while Massachusetts saved an average of 17%.

But some people make the mistake of choosing the highest deductible just to save money on their premium. In the case of an incident, though, having a high deductible could have serious financial consequences.

Although $1,000 is often considered an average deductible, it’s becoming more common for individuals to mitigate their risk by opting for lower deductibles of $500 or even $250.

So how do you know which deductible is right for you?

One of our insurance advisors can help you decide whether a $500 or $1,000 deductible makes the most sense for your situation. Give us a call today to learn more: 844-819-2221​​

What Happens If You Can’t Pay Your Car Insurance Deductible?

If you can’t pay your deductible, consider waiting to make the repairs until you can save up enough cash to cover it. If your car is already at the repair shop, you could take out a loan to pay the deductible or ask the shop to hold your vehicle until you can find some extra money.

How does a car insurance deductible work?

Conventional automobile insurance policies generally require the consumer to select one deductible for comprehensive coverage, and a separate deductible for collision coverage, although they may be the same deductible amount. The liability coverage in the policy does not involve a deductible.

Comprehensive coverage protects your vehicle from theft and damage not caused by a collision. The deductible on your policy will apply if you file a claim for damage covered by comprehensive, however there are some instances in which you don’t have to pay a comprehensive deductible. For example, cracks or chips in your windshield may be paid in full by your insurance company depending on the state you live in.

Collision coverage pays the costs of any damage to your vehicle caused by a collision with an object when you are at-fault. Any claim you file for damage that is covered by collision will be subject to a collision deductible.1

The higher a deductible, the lower the annual, biannual or monthly insurance premiums may be because the consumer is assuming a portion of the total cost of a claim. Keep in mind that the deductible amount will come out of the policyholder’s pocket in the event of an at-fault car accident, which could overshadow the premium savings.

Conversely, a low deductible will increase the premium payments. If the policyholder does not have an at-fault accident resulting in a claim, the individual has paid more for automobile insurance than someone with a higher deductible.

3. In auto insurance, a higher deductible means the customer _____. a

In auto insurance, a higher deductible means the customer _____. a. has a higher monthly bill, but pays less out of pocket in the event of an accident. b.(7)

Choosing a lower deductible means a higher monthly payment. and they may offer discounts to auto customers who drive safer vehicles.(8)

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Choose confidently with help from our team of expert insurance advisors.

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Five questions to help you choose the right car insurance deductible

In determining the right deductibles, here are five questions to consider before making the decision:

  1. How do different deductible levels affect the insurance premium?

    This is a good question as no two insurance companies will have the same deductible-premium ratio, and states differ on their regulatory approach to the subject. Each state may have different rules regarding the way a deductible is incorporated into an insurance policy. By and large, increasing the dollar deductible from $200 to $500 could potentially reduce collision and comprehensive coverage premium costs by 15% to 30%, whereas increasing the deductible to $1,000 may save 40% or more.

  2. What’s the downside of a high deductible?

    Let’s say an unknown driver has inadvertently sideswiped a car, costing the owner $800 of damage. The owner has a $1,000 deductible. That $800 now comes out of the owner’s wallet. However, if the owner had a $100 deductible, the out-of-pocket expense would be only $100, providing a savings of $700.

  3. Is it better financially to have a low deductible and a higher premium?

    That depends. Someone with a low deductible/higher premium ratio can go through a 10-year period without filing an insurance claim. The person will end up having paid more money over that time in total premium than someone else with a higher deductible. Alternatively, a person can end up filing several insurance claims in just a few years.

  4. So how does someone decide which solution is best?

    Some questions to ask yourself include:

    • Are you comfortable taking on some financial risk through a higher deductible or does this prospect make you uncomfortable?
    • Do you have the financial means to pay the high deductible if you had to do so?

    If you are currently experiencing financial difficulties, it might seem that a high deductible is best because it will lower the total premiums. But if you are in an at-fault accident, will there be enough cash on hand to pay the deductible? A best practice is to create an emergency fund to cover the higher deductible before actually taking it.

  5. How does a person’s driving record affect the choice of deductible?

    The current thinking is the cleaner the driving record, the greater the consideration one should give to a higher deductible as it will lower premiums. On the other hand, for someone with a less-than-clean driving record, the person should consider taking a lower deductible, despite the additional premiums. You can also consider a program that rewards safe driving, like Nationwide’s Vanishing Deductible, which allows you to earn $100 off of your comprehensive and/or collision deductible for every year of safe driving. Up to $500 total.1

The bottom line is that choosing the right deductible takes time and consideration. A specialized insurance agent can help consumers make the best decision based on their driving record, current finances, credit record and overall financial planning goals.

1 , Accessed December 2021.

Choose your deductible and get coverage from Progressive

New Progressive customers

Call 1-866-749-7436 or get an auto insurance quote online, and we’ll help you figure out the best deductible for each coverage.

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Log in to your policy or call us at 1-866-749-7436 and make changes to your existing deductibles, if necessary.

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