100 Words On: When High Car Insurance Deductibles Make Sense

While most people strive to keep their car insurance deductibles as low as possible, the downside is those deductibles result in higher premiums. But for folks who drive limited miles, safe motorists, and those who drive older vehicles that have lost most of their value, it usually makes sense to get the highest deductible one can reasonably afford. That’s because higher deductible policies offer lower premiums that, over time, can result in significant cost savings.

The bottom line: Remember, car insurance isn’t intended to cover minor fender benders — it’s designed to protect you from losses you can’t afford to replace.

Photo Credit: H.L.I.T.

13 comments to 100 Words On: When High Car Insurance Deductibles Make Sense

  • wouldn’t the bottom line apply to any type of insurance? wouldn’t health insurance cost a lot less if that same principle was applied?

  • Alex

    The Griper: absolutely. High deductible ($7500/year) health insurance will cost healthy under 40 person under $70/month.

    • Well sure, but a car is a relatively limited expense, whereas medical expenses are potentially open-ended and can add up really fast. A lot of medical plans with a high deductible also have a high co-pay too.

      Example:
      Plan A $1500 deductible, 20% co-pay, $170/month
      Plan B $7500 deductible, 30% co-pay, $70/month

      After 2 years of premiums and clean living, you have a short hospital stay. The charge is $65,000. How much did this cost you?

      Plan A: $170*24 = $4080 in premiums, ($65000-1500)*.2+1500 = $14,200 out of pocket, for a total of $18,280.

      Plan B: $70*24 = $1680 in premiums, ($65000-7500)*.3+7500 = $24,750 out of pocket, for a total of $26,430.

      So you saved $2400 in premium costs on Plan B, but the out-of-pocket difference for the hospital stay is $10,550, which more than wipes out the savings.

      Ignoring the monthly premiums, how many of us have a cool $24,750 set aside for unexpected medical costs? For that matter, how many of us, even with the better coverage of Plan A, have $14,200 set aside just for medical emergencies?

      It’s easy to see why medical emergencies are the #1 cause of bankruptcies.

      • and what are the odds of probability of that scenario occuring at any given time?

        we can afford to spend $30,000 for a new car every three or four years but we cannot afford that much money on our health. does anyone see something wrong with this argument?

      • Afford anything

        Many health plans, including high deductible ones with co-pays, have annual out-of-pocket maximums. My plan, for example, has a copay with a $5500 annual out of pocket max, meaning the most I’ll spend in a given year in the worst case scenario is that amount plus my deductible.

  • This year I switched my car insurance to the highest deductible possible. The reason being was that I very rarely get in accidents and I wanted to keep my insurance costs down. Even if I did get in an accident, I would have no problem paying that higher deductible.

  • Amen to that!
    We saved $40/mo by dropping comprehensive on the older car and raising the deductibles on both of them. The older one gets driven < 5000 miles a year so it makes perfect sense.

  • David M

    I agree a few years ago I switched from $500 to $1,000 decuctable and the rate went down $240.

    Thus what I realized was a was $240 a year for $500 in coverage!!!!

  • Ranica

    @Modest Money – I did the same. I switched to an NJ non-profit insurance company and jacked my deductible up way high. After years of paying ridiculously high rates (I’m young, but have never had a claim/ticket in my life) I’m finally down to a reasonable rate.

  • This is true for all kinds of insurance. It is supposed to protect us against losses you can’t afford to replace. This is a worthwhile lesson for a lot of things.

  • I’ve had a high deductible for years. I never get into accidents and can cover the $1,000, so why pay the higher premium. Instead, I pay that money towards high limits, since I own a house and don’t want to get sued.

  • I switched to $1000 deductible 8 years ago. I figure I have saved myself $2000 in the last 8 years. This is more than enough to cover the $500 gap in coverage if something happened.

  • If you are a safe driver, I recommend high deductibles as well. If you have been known to cause accidents like the one in the picture above, I would keep my deductibles as low as possible.

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