Deductibles – High or Low?

Deductibles post image, shows a crashed car with debris.

Which is The Better Choice for Auto Insurance: High Deductible or Low Deductible?

A very common question we hear is “Is it better to have a higher deductible on my car insurance than a lower deductible?” In some situations opting for a higher deductible may save money on monthly payments.

But what happens when you’re leaving the parking lot and you back into the light pole, crushing your tail light? You take the car to the auto repair shop to get a quote and you find out you’re going to be paying for the full cost. At this point, you are gong to be thinking to yourself, how was that a good deal?

When comparing car insurance policies with low or high deductibles it is important to understand that there are several factors that should be considered. Your financial situation, the state of your driving record, and premium costs.

To begin with, you need to understan what a deductible actually is. An auto insurance deductible is the amount of money you will be required to pay toward repairs before your insurance policy kicks in to pay the balance. As an example, if you sustain $4,350 worth of damages to your vehicle and you have a $500 deductible then you will have to pay $500 and the policy will chip in the remaining $3,850 of the repair costs.

The reasoning behind the concept of a deductible is this. A deductible amounts to a shared portion of risk between you and the insurance company. Basically, if you know that you will incur some part of the cost, but not the majority of it, you are likely to be more careful while driving your car so you don’t bump into things or engage in risky behaviors like sending a text while driving. However, auto insurance deductibles usually only apply to the parts of the policy related to damage to your own property, namely the comprehensive and collision coverage. You policy’s liability coverage does not have a deductible. This means that in the event you hit someone else’s car, the insurance company will pay for repairs to the other person’s vehicle, up to whatever your coverage limits are set at.

So how do you decide on low or high deductibles?

The benefit of a low deductible is that if you actually have to file a claim, you will pay less money toward the cost of damage repair. However, the downside is that low deductible polices typically have higher insurance premiums. Policies with higher deductibles have the best upfront savings as the premiums are usually lower, but then IF you have a claim, you might experience some sticker shock when you see the price that you actually have to pay to get repairs done.

Your Finances

When choosing a deductible, you must consider how much money you could afford to pay in the event you are involved in an accident. Almost all auto insurance companies provide deductible levels to choose from, with some as high as $1,500. In most cases, the higher the deductible, the lower the premium. Choosing a lower deductible will make premium higher. This is because the insurance company is taking the risk that it will have to pay more money for repairs if a claim is filed.

As with many things in life, it isn’t as simple as just opting for a higher deductible and saving money on premiums. Higher deductibles, while they do lower the premium, will not be in your best interest if you won’t be able to afford to pay for repairs after an accident. What ever the size of deductible you choose, you really must be prepared to pay that amount if you are involved in an accident.

Your Driving Record

Your driving record says a lot about the risks involved in driving. People who have been involved in multiple auto accidents will generally have higher auto insurance premiums than people with a clean driving record. Also, newer or younger drivers have less of a track record, and often have higher premiums due to ‘unknown risk’.

The Decision Is Yours

At Liveoak Insurance Agency, we are here to provide you with the best advice on these decisions. There is never really any way to know if you will ever need to file an insurance claim, but if a high deductible makes you nervous about paying a large sum for repairs, you will likely be happier with a lower deductible, assuming you can afford the premiums. Higher deductible policies could be the best choice for someone who needs to save on premium costs as long as they are responsible financially and can apply those savings to a savings fund to be used in the event of an accident.

We pride ourselves on being able to have a conversation with you that allows us to understand your needs in these areas and find insurance policies that cover your risks appropriately and fit your budget as well.

Call us if you have questions about your insurance needs or to be sure you’re getting the best rates.