Low deductible, but high premium; there are other options to save money each month.
The average 6-month premium for car insurance with a $500 deductible is about $720, or about $120 per month. $500 are considered the norm of the insurance world although many drivers might not understand the impact they can have on your insurance policy. 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 the $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 protects your vehicle against things other 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.
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 point, 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.
|Car Insurance Provider||$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 claim under your 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.
|Year After Accident||Average Premium Increase|
|Increase at 6 months||+$343|
|Increase at 12 months||+$688|
|Increase at 3 Years||+2,604|
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 when your deductible will be chosen for you. 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.
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