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100 Words On: When High Car Insurance Deductibles Make Sense

By Len Penzo

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.

October 25, 2018

Comments

  1. 1

    The Griper says

    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?

    • 2

      Garry says

      Debt makes everything difficult for sure. I knew things will be like this but your site has made everything even clearer for me. I had a pretty difficult month but the situation is improving slowly.

      • 3

        Len Penzo says

        Thanks, Garry.

  2. 4

    Alex says

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

    • 5

      DemosCat says

      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.

      • 6

        The Griper says

        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?

      • 7

        Afford anything says

        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.

  3. 8

    Modest Money says

    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.

  4. 9

    Dollar D @ The Dollar Disciple says

    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.

  5. 10

    David M says

    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!!!!

  6. 11

    Ranica says

    @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.

  7. 12

    krantcents says

    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.

  8. 13

    Bret @ Hope to Prosper says

    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.

  9. 14

    ShortRoadTo says

    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.

  10. 15

    James says

    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.

  11. 16

    Ashley Miller says

    There’s no doubt about it, having high deductibles mean lower rates for your monthly insurance payments., but would also mean paying more out-of-pocket in the event of a loss. But if you are a safe motorists who drives limited miles, just like what Len said, this is for you.

  12. 17

    Justin says

    Completely agree with this.

Trackbacks

  1. 3 Myths that Don’t Help You Save on Car Insurance – Len Penzo dot Com says:
    May 20, 2018 at 9:01 am

    […] This myth couldn’t be further from the truth, which is why it’s so important to get an insurance quote from multiple companies. You need to take the time to weigh your options, otherwise you could end up paying more than necessary for your car insurance. Also, make sure you understand the amount of coverage you’re receiving for each quote you receive. Remember, even if you get quoted for the same amount from two separate insurance companies, you could actually be receiving less coverage from one of them, so make sure you get the most value for your money. […]

  2. What Is GAP Insurance for Cars and Why Should You Buy It? – Len Penzo dot Com says:
    August 6, 2019 at 4:07 pm

    […] Usually, when you get in an accident and your car is declared a total loss — or your car is stolen and never found — your auto insurance company pays the car’s blue book value minus your policy’s deductible. […]

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