Figuring Out the Best Car Insurance Deductible for You

I love this question because it uses two of my favorite Fearless Finance mantras: Play to your DNA and the Do the Math.

Play to Your DNA and ask yourself 3 questions:

1. Do you have at least 10 times the amount of your deductible in ‘ready-to-use’ savings?

2. Have you been accident/claim free for at least 4 yrs?

3. Are you comfortable with a little a little risk for a lot more savings?

If you answered YES to the three questions above, then you’re a candidate for carrying a higher deductible on your car insurance and saving some money.

Do the Math!
1. Call your insurance company (and any others you have time to call) and ask for quotes on your same policy with deductibles of $250, $500 and $1000.

2. Compare ANNUAL prices:  (if your insurance company quotes you semi-annual premium prices just multiply by 2; monthly, multiply by 12).


$250 Deductible Annual premium = $1000
$500 Deductible Annual premium = $800
$1000 Deductible Annual premium = $540

Going from $250 to $500                                       Going from $500 to $1,000

Savings/year = $1,000-$800 = $200                   Savings/year = $800-$540 = $260
Additional $$$ if accident = $250                         Additional $$$ if accident = $500
month = $200/12 = $16.67                                      Savings/month = $260/12 = $21.67
Break even = 15 months                                        Break even = 23 months

Break Even means the number of months it would take you to save the extra savings you get from having a higher deductible to total the amount you would need should you have an accident and have to pay out your higher deductible. Break Even = Additional $$ if accident/ (Savings/month).

You can compare between different companies like this as well. You see that if you go from a $500- $1000 deductible and stay accident-free for less than two years you will be saving!

Do NOT raise your deductible if:
1. Break Even is greater than 24
2. You are prone to accidents and have made several claims in the last 10 years
3. Your savings fluctuates and sometimes you have 10 times the deductible and sometimes you don’t due to other aspects of your life like a change in job status, divorce or serious illness
4. If you can handle a little extra risk, but your partner cannot. Forcing risk upon someone whose DNA does not like it, will cause a lot of strife unless you can find a middle ground.