The Pros and Cons of High Deductible Car Insurance

When you buy car insurance, one of the most important decisions you have to make is how much deductible you want to pay. A deductible is the amount of money you have to pay out of your own pocket before your insurance company pays for the rest of your claim. For example, if you have a $500 deductible and you file a claim for $2,000 worth of damage to your vehicle, you will have to pay $500 and your insurance company will pay $1,500.

The amount of deductible you choose affects your car insurance premium and claim. Your premium is the amount of money you pay to your insurance company for your policy, either monthly or annually. Your claim is the amount of money you request from your insurance company for the losses or expenses you incur as a result of an accident or damage to your vehicle.

Generally speaking, the higher your deductible, the lower your premium, and vice versa. This is because by choosing a higher deductible, you are taking on more financial responsibility and risk in the event of an accident or damage to your vehicle, and thus reducing the amount of money your insurance company has to pay for your claim. Conversely, by choosing a lower deductible, you are transferring more financial responsibility and risk to your insurance company, and thus increasing the amount of money they have to pay for your claim.

A high deductible car insurance is a type of car insurance plan that has a higher than average deductible, usually $1,000 or more. A low deductible car insurance is a type of car insurance plan that has a lower than average deductible, usually $500 or less. For example, a high deductible car insurance plan may have a $1,500 deductible and a $100 monthly premium, while a low deductible car insurance plan may have a $250 deductible and a $150 monthly premium.

There are pros and cons of choosing a high deductible car insurance over a low deductible car insurance, and vice versa. Depending on your personal and financial situation, a high deductible car insurance may be more suitable or beneficial for you than a low deductible car insurance, or the other way around. In this article, we will explore the main pros and cons of high deductible car insurance and help you decide whether it is the right choice for you.

Pro: Lower Premiums

One of the main advantages of choosing a high deductible car insurance is that it can lower your premium and save you money in the long run. By opting for a high deductible car insurance, you are agreeing to pay more out of your own pocket in the event of an accident or damage to your vehicle, and thus reducing the amount of money your insurance company has to pay for your claim. This means that your insurance company will charge you less for your policy, and you will pay less for your premium.

To illustrate how much you can save by choosing a high deductible car insurance, let’s look at an example. Suppose you have a 2019 Honda Civic and you live in California. According to ValuePenguin, the average annual premium for a car insurance policy with a $500 deductible in California is $1,815, while the average annual premium for a car insurance policy with a $1,500 deductible in California is $1,545. This means that by choosing a high deductible car insurance, you can save $270 per year or $22.50 per month on your premium.

Of course, the amount of money you can save by choosing a high deductible car insurance depends on various factors, such as your driving record, vehicle type, location, coverage level, etc. The better your driving record, the more you can save by opting for a high deductible car insurance. The cheaper your vehicle type, the more you can save by opting for a high deductible car insurance. The lower your location’s risk level, the more you can save by opting for a high deductible car insurance. The lower your coverage level, the more you can save by opting for a high deductible car insurance.

Con: Higher Out-of-Pocket Costs

One of the main disadvantages of choosing a high deductible car insurance is that it can increase your out-of-pocket costs in the event of an accident or damage to your vehicle. By opting for a high deductible car insurance, you are agreeing to pay more out of your own pocket before your insurance company pays for the rest of your claim. This means that if you have an accident or damage to your vehicle that requires repairs or replacement, you will have to pay a large sum of money upfront before you can get any compensation from your insurance company.

To illustrate how much you may have to pay out of your own pocket if you have a high deductible car insurance, let’s look at another example. Suppose you have a 2019 Honda Civic and you live in California. According to CarMD, the average cost of repairing a check engine light problem in California is $414. If you have a high deductible car insurance with a $1,500 deductible, you will have to pay the entire $414 out of your own pocket, since it is less than your deductible. However, if you have a low deductible car insurance with a $250 deductible, you will only have to pay $250 out of your own pocket, and your insurance company will pay the remaining $164.

Of course, the amount of money you may have to pay out of your own pocket if you have a high deductible car insurance depends on various factors, such as the severity and frequency of accidents, the cost of repairs, the availability of emergency funds, etc. The more severe and frequent the accidents, the more you may have to pay out of your own pocket if you have a high deductible car insurance. The higher the cost of repairs, the more you may have to pay out of your own pocket if you have a high deductible car insurance. The less emergency funds you have, the more you may have to pay out of your own pocket if you have a high deductible car insurance.

Pro: Less Claims

Another advantage of choosing a high deductible car insurance is that it can discourage you from filing minor or unnecessary claims and reduce your chances of being dropped by your insurance company or having your premium increased. By opting for a high deductible car insurance, you are agreeing to pay more out of your own pocket in the event of an accident or damage to your vehicle, and thus reducing the amount of money your insurance company has to pay for your claim. This means that if you have an accident or damage to your vehicle that requires repairs or replacement, you may decide not to file a claim at all if the cost is less than or close to your deductible, since it would not make much difference in terms of compensation.

By filing fewer claims, you can benefit yourself and your insurance company in the long run. For yourself, filing fewer claims can help you maintain a good driving record, preserve your no-claim bonus, avoid disputes or lawsuits, and save time and hassle. For your insurance company, filing fewer claims can help them ave money and resources, reduce fraud and abuse, and improve customer satisfaction and loyalty.

According to a study by InsuranceQuotes.com, filing a single claim can increase your premium by an average of 41%, while filing a second claim can increase it by an average of 93%. However, if you have a high deductible car insurance and you file fewer claims, you can avoid these premium hikes and keep your insurance costs low.

Con: Less Coverage

Another disadvantage of choosing a high deductible car insurance is that it can limit your coverage options and expose you to more risks and liabilities in the event of an accident or damage to your vehicle or others’ property or persons. By opting for a high deductible car insurance, you are agreeing to pay more out of your own pocket before your insurance company pays for the rest of your claim. This means that if you have an accident or damage to your vehicle that requires repairs or replacement, you may not be able to afford to pay your deductible and get your vehicle fixed or replaced. You may also not be able to afford to pay for the damages or injuries you cause to others in an accident if they exceed your coverage limits.

By having less coverage, you can harm yourself and your finances in the long run. For yourself, having less coverage can leave you with a damaged or unusable vehicle, a lower resale value, a reduced safety and comfort, and a higher stress and anxiety. For your finances, having less coverage can leave you with a large debt, a lower credit score, a higher interest rate, and a reduced savings and investment. You may also face legal consequences if you are sued by the other party involved in the accident or if you violate the state’s minimum insurance requirements.

According to the National Association of Insurance Commissioners (NAIC), the average cost of bodily injury liability claims was $18,417 and the average cost of property damage liability claims was $3,841 in 2017. However, if you have a high deductible car insurance with low coverage limits, such as $10,000 for bodily injury liability per person and $5,000 for property damage liability per accident, you may have to pay the difference out of your own pocket if you cause an accident that results in higher damages or injuries. You may also have to pay a fine or face a license suspension if you are caught driving without adequate insurance in your state.

Conclusion

Choosing a high deductible car insurance over a low deductible car insurance can have its pros and cons, depending on your personal and financial situation. A high deductible car insurance can lower your premium, discourage you from filing minor or unnecessary claims, and reduce your chances of being dropped by your insurance company or having your premium increased. However, a high deductible car insurance can also increase your out-of-pocket costs, limit your coverage options, and expose you to more risks and liabilities in the event of an accident or damage to your vehicle or others’ property or persons.

Therefore, it is important to weigh the costs and benefits of high deductible car insurance and choose the one that best suits your needs and budget. You should also compare different car insurance companies and policies and choose the one that offers the best value and service. You should also review your policy regularly and update it if your circumstances change.

For more information or guidance on high deductible car insurance, you can visit the following resources:

• The National Association of Insurance Commissioners (NAIC) website: https://www.naic.org/
• The Insurance Information Institute (III) website: https://www.iii.org/
• The Consumer Reports website: https://www.consumerreports.org/