How Much of a Deductible Should You Take on Car Insurance?

Collision and comprehensive car insurance are types of optional insurance coverage that can be purchased to pay for damage to a vehicle from traffic accidents or other events like fires, hail and theft. The deductible is the amount of money that the driver must pay out of pocket before the insurance company will pay for any damages; the best deductible option depends largely on the planned usage of the car and the financial situation of the owner.

Car Value

The higher the deductible on collision and comprehensive coverage, the less money the owner will have to pay toward insurance premiums. One of the main considerations that should go into deductible levels is the value of the car being insured. Cars that are older and are not worth very much may not be worth insuring with comprehensive or collision coverage at all. For instance, if a car is worth $1,000, it doesn't make sense to pay $500 or more a year in insurance premiums to protect the car, no matter what the deductible is. For cars that are worth slightly more, deductibles should be low enough so that they will cover the majority of damage done to the car. For instance, if you have a $4,000 car and a deductible of $2,000, you would have to pay at least half of the cost of any damage to the vehicle; opting for a lower deductible like $500 or less would be a better option. If a car is new and worth $10,000 or more it is important to carry collision and comprehensive coverage.

Driving Habits

The expected use of a car should play a large role in the deductible plan. If you are a very safe, defensive driver who always drives the speed limit and has rarely, if ever, been in an accident, it makes sense to have higher deductibles, since the chances of incurring damage to your car are lower. If you have gotten into several accidents and drive in bad conditions like heavy traffic, it might be worth getting a lower deductible, since the chances of accidents are higher.

Driving frequency is also an important factor. If you use your car to commute, it makes sense to set a lower deductible, while if you rarely use your car, setting higher deductibles can save money without as great a risk.

Financial Considerations

In the end, the question of what deductible level to choose is a financial one. The easiest way to decide what deductible to choose is to ask yourself: "What is the most I could afford to pay to fix my car if it was damaged?" If suddenly having to pay a $1,000 deductible to fix up your car would be impossible for you financially, you should set a deductible lower than that. A general rule of thumb is to set the deductible as high as possible up to around $2,000 while still being able to afford paying it should the need arise.

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