Low deductible, but high premium; there are other options to save money each month
Discussing deductibles is pretty common in the insurance world. But for your car insurance policy, they evoke a lot more than a single conversation. What deductibles are, how they impact your premium and your insurance policy, and which insurance companies offer the cheapest car insurance with a deductible worth $500 are all topics we will explore. Let’s get started.
Simply put, a deductible is what you pay after an accident and filing an insurance claim — the remainder is covered by your insurance company. For example, you’re in an accident in which you hit a pole and cause $1,300 worth of damage to your vehicle. You have a $500 deductible. In this scenario, you would only pay $500 of that $1,300 and the remaining $800 would be paid by your insurance company.
It’s important to consider that a deductible is only used for certain coverages. For instance, there are no deductibles for your liability coverage. The liability portion of your auto insurance, which consists of your bodily injury protection (physical injury you cause in an accident) and property damage (damage to property you cause in an accident) are not held to a deductible limitation. Deductibles typically applies to your vehicle through 3 coverage options; comprehensive, collision, and uninsured motorist property damage. Let’s break down those coverages.
Your collision coverage is what you typically think of when you’re thinking about a car accident; it refers to colliding with another fixed object, such as a vehicle, guardrail, or a wall. Liability (fault) is irrelevant here, so the costs of repairs will be covered after you pay your deductible. In the event of collision claim, you would pay what’s called your collision deductible.
Comprehensive coverage through your comprehensive deductible covers things over than collision. So, things like theft, vandalism, animal and weather-related accidents. Just like your collision deductible, liability isn’t factored into a comprehensive claim. The costs of repairs will be covered minus your comprehensive deductible regardless of fault.
Uninsured property damage coverage, or UMPD, works very similarly to collision coverage. If you’re in a not-at-fault accident and the other driver either does not have a car insurance policy or does not have enough insurance, this will cover the damages minus your deductible. Often times, your insurance company will compensate you for your UMPD deductible via the other driver.
While your deductible is what you pay in the event of a collision, comprehensive, or UMPD insurance claim, your premium is what you pay every month (or every 6-12 months, depending on your billing cycle).
Basically, your deductible and your premium are inversely related; if you raise one, your lower the other. Let’s look at an example where you raise your premium from $250 to $500. This would lower your premium because you are taking a greater amount of financial responsibility for the potential repairs your insurance company would have to pay. If you were to cause $2,000 in damages to your vehicle, your insurance company would only have to pay $1,500 versus $1,750. So, they will reward you for their decreased financial responsibility by lowering your premium.
Between the range of deductibles available (which can sometimes be specifically based on your insurance company) $500 is pretty average. So, in order to see which car insurance company offers the cheapest rates with this deductible, we surveyed some top insurance companies where the driver (profile outlined here) had a $500 deductible. Here are the results.
6 Month premium with a $500 deductible
As you can see, Nationwide is the cheapest insurance company if you have a $500 deductible with our user profile. However, this is only reflective of our standard user profile, which is probably pretty different than you. Use our model as a starting, by beginning but not ending your search for car insurance with Nationwide.
While a $500 deductible is a considerably standard deductible to choose, you do have some flexibility. If we revisit the user profile we created with a $500 deductible and increase the deductible to $1,000, we can see how our auto insurance rates shift.
6 month premiums with a $500 v. $1000 deductible
|Age||$500 Deductible||$1000 Deductible|
On average, you save about $81 per a 6-month insurance policy period if you chose a $1,000 deductible versus a $500 deductible. But, there’s another reason to consider a higher deductible that can end up saving you thousands. By increasing your deductible, you discourage yourself from using it and filing what would be considered an at-fault claim. Let us explain further.
When you file a collision coverage (and sometimes for a UMPD insurance claim), your insurance company will raise your rates for what they see as an at-fault accident. An insurance company views collision claims to be at-fault accidents because they see you, the driver, as in control of the vehicle when the accident occurred. Thus, you’re responsible.
The average insurance company in the US will increase your rates by nearly 50% after your first at-fault accident. Moreover, this rate increase will stay on your insurance record for 3 years — meaning that percentage increase will last 3 years. Below, you can see some average estimates for a collision claim across the US over 3 years.
Increase after an at-fault accident
|No accidents||Increase at 6 months||Increase at 12 months||Increase at 3 Years|
As you can see, filing an at-fault where the damages are greater than $2,000 will raise your premium an average of $618 a year or $2,604 for the full 3 years. Because of this, most insurance experts recommend only filing an insurance claim if you suffer a catastrophic loss where the value of the premium increase plus your deductible is less than the cost of repairs.
Although you can expect a hefty increase from filing a collision claim, your comprehensive deductible is a little different. Your insurance company will generally consider comprehensive claims to be not-at-fault because they tend happen outside the control of the driver. Thus, the monetary impact of a comprehensive claim is almost zero.
Despite the evidence that maybe a $500 isn't the way to go, it's still a pretty standard deductible. Plus, there are times in your insurance lifetime when you won't have a choice. If you have a loan or lease on your vehicle, you might be required to maintain at least a $500 deductible. When you enter these types of agreements, you do not own the vehicle and thus are required maintain the physcial intregity of it. Your loan and lease company might fear if you have a deductible greater than $500, you will be unable to pay it. Thus, $500 is usually the maximum amount they will allow.
If you’re looking for more information on deductibles or other information on car insurance, see our additional articles here.
Between September and December 2017, The Zebra conducted comprehensive auto insurance pricing analysis using its proprietary quote engine, comprising data from insurance rating platforms and public rate filings. The Zebra examined nearly 53 million rates to explore trends for specific auto insurance rating factors across all United States zip codes, averaged by state, including Washington, DC.
Analysis used a consistent base profile for the insured driver: a 30-year-old single male driving a 2013 Honda Accord EX with a good driving history and coverage limits of $50,000 bodily injury liability per person/$100,000 bodily injury liability per accident/$50,000 property damage liability per accident with a $500 deductible for comprehensive and collision. For coverage level data, optional coverage (that must be rejected in writing) is included where applicable, including uninsured motorist coverage and personal injury protection.
National property and casualty losses information is from the Insurance Information Institute and the NOAA National Centers for Environmental Information U.S. Billion-Dollar Weather and Climate Disasters report.
For vehicle make and model data, analysis referenced the most popular vehicles in the U.S. by 2016 year-end sales according to Goodcarbadcar.net’s automakers’ data.
Finally, some rate data may vary slightly throughout report based on rounding.
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