How to Choose the Right Auto Insurance Deductible

One of the main factors that determines your car insurance premium, besides the condition of your car and level of coverage, is the deductible you choose. The auto insurance deductible is the amount of money you agree to pay out-of-pocket for all repair and liability claims.

In general, the higher the deductible you choose, the lower your premium. There are many factors to consider when choosing the auto insurance deductible; saving money on your auto coverage is but one aspect. If you are researching car insurance offers, this guide will help you choose the right deductible.

First, research the average cost of a claim for your type of vehicle. Find out how much it will cost to fix a front-end collision, side collision damage, minor dents, towing, passenger injury, and then compute the average. Then, take about 1/3 of that number as a starting point for deciding the deductible.

For example, if you estimate the average claim to be about $750, then start with $250 for the deductible.

Assess the likelihood of filing an auto accident claim. If you frequently drive on the highways, at night, or in a region with inclement weather, then your risk is higher. Estimate the number of times you think you might get into an accident each year.

Next, visit car insurance websites to compare auto quotes using 3 different deductible values: the one you picked in the first step, a deductible that's $100 less, and a deductible that's $100 more. Using the example of a $250 baseline deductible, you should compare car insurance premiums using values of $150, $250, and $350. Compare rates with at least four different auto insurance companies. When you plug these deductibles into an auto insurance quote calculator, you will see that the higher the deductible, the lower the premium.

Now, estimate the annual cost of insurance and claims for a year. For example, suppose you predict having 1 accident per year, you have a $250 deductible, and your 6-month premium is $600. Then your estimated yearly costs would be $250 + $600 + $600 = $1450. Perform this calculation using deductible values of $150 and $350 and the corresponding premiums.

Choose the auto insurance policy option that yields the lowest yearly costs.

Keep in mind that this is only a rough guide to help you choose the right deductible for your auto insurance policy. If your vehicle is leased or financed, your lender may impose additional requirements. For instance, you may be required to buy collision coverage, even though your state's laws don't require it. Also, your deductible may be capped if you lease a vehicle. (The reason for this is that your lender doesn't want you to default on the loan due to high repair costs.) And of course, no one can predict how many accidents they may have in a given year. You can always change your policy or switch insurers if the fees are too high.

© Had2Know 2010