Insurance » Auto Insurance » Should I Have a $500 or $1000 Auto Insurance Deductible
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Should I Have a $500 or $1000 Auto Insurance Deductible

Low car insurance deductible can be beneficial in some cases - but risky in others. What's the right amount for you and which factor you should consider?

What Is a Car Insurance Deductible?

We’re going to start out by taking a look at your insurance deductible. When you look at your car insurance and it tells you that you have a deductible that means it’s an amount you pay. And not only do you pay that amount but you pay it before the insurance pays anything. This is something to consider if you ever have a claim or think you do.

If you have a repair for your vehicle that will cost $1,000 and your deductible is $500 you’ll end up paying that $500 and then they’ll pay $500. If your repair is only $600 though you may want to reconsider turning it in. Your insurance will pay the $100 but they’ll probably raise your insurance as well.

With a deductible, your insurance company is giving you some of the responsibility for your vehicle. They want to make sure they don’t have to pay quite as much for whatever happens to your vehicle. Keep in mind that you’re going to pay the deductible for specific parts of your insurance. Other parts may not have a deductible at all.

Premiums Vs Deductible 

If you set up a lower premium you’re generally going to have a higher deductible to pay. If you agree to a high premium you’ll get a lower deductible. Low deductible means your insurance company is on the hook for more of the damage if there’s a problem, so they charge you upfront.

If you have a $500 deductible your insurance company pays for anything over that amount. If you have a $1,000 deductible your insurance pays for anything over that amount.

That $500 difference in your deductible could make a big difference in your premiums. And the lower the deductible you want the higher your premium could go.

For some people having a lower premium each month is worth the high deductible. If you’re involved in an accident you may be able to come up with that money for the deductible. If you have a lot of claims, however, you might want to go with a higher premium and a low deductible.

What Deductible Do I Need?

When it comes to your deductible you want to make sure you know what you’re getting into. You may want to get a high deductible so that you can lower your premium.

In fact, increase your deductible from $200 to $500 could help you save as much as 25% on your premium. If you increase that again to $1,000 you could save as much as 50%.

That’s going to be a whole lot of money that you can save every month. But keep in mind that your insurance might be slightly different. They may offer you different options or benefits to higher deductibles. You can take a look at some insurance comparison tools to find out more. And you can talk with your insurance company as well.

Make sure you evaluate just how long it will take you to get the benefits of that difference. How much would you have to use your insurance to make it worthwhile to have that lower deductible plan over the higher deductible one? This will help you decide if you’re making the best decision.

Factors To Consider When Choosing Auto Insurance Deductibles

Here are the main important factors to pay attention when deciding your car insurance deductible:

Savings vs. Risk

How much money are you going to save each year by having that lower premium?

Now, how much is it going to cost you if you have to make a claim? Think about the last time you had to make a claim and assume that’s how many years until you make your next claim.

How much money are you saving on premiums for that length of time and how much will the claim cost you? Is it going to be worth it for you to save that money over the long run? Are you going to end up in even more financial trouble in the end?

Vehicle Value

How much money is your vehicle actually worth? If it’s not worth much then you don’t need as much coverage. You may also want to save some money on premiums for a high end car (since they’ll be expensive for other reasons). That means you may agree to a high deductible so you can cut costs slightly.

Some people really want to have as much coverage as possible, even if their vehicle is old or not in the best shape.

Having a low deductible is generally the best way to go because your vehicle may not be worth the high deductible.

Or you could drop some of the coverage entirely.

Personal Risk

Are you likely to make a claim on your insurance?

If you’ve made a lot of claims before then you’re more likely to make a claim again. Also, if you’re constantly driving in busy areas you are more at risk. And that’s true no matter how safe of a driver you are.

If you have high personal risk you may want to get a low deductible. This will protect you in case one of those near misses turns into a problem.

On the other hand, you could leverage your low risk to get a high deductible and save some money just in case.

Cost-Effectiveness

Can you afford the deductible if something goes wrong?

If you have to make a claim can you come up with the money that you are responsible for?

You want to know that you can pay off the expense. If you can’t then you need to lower the deductible instead and you may need to come up with higher premiums.

Own or Lease

If you lease a vehicle or you have a loan on it you may want to get a lower deductible.

On the other hand, once you own the vehicle you may be willing to take on a higher deductible. After all, when it’s a loan or a lease you are responsible for getting it to like new condition.

If it’s yours you have some leeway.

Bottom Line

When it comes down to it you want to pay attention to your own needs and wants. Maybe you don’t want to be responsible for as much if there’s an accident. In that case you can opt for a higher premium and lower deductible. If you want to keep your monthly costs down you may want to opt for a higher deductible instead.

The decision that you make is up to you. And it’s also going to be up to your personal preference. After all, you want to make sure you can afford it. If you can’t afford a large payment every month you may have to go with a low premium and high deductible.

If you know you couldn’t come up with a large, lump-sum if there’s an accident then you may need to go with a higher premium and lower deductible.

Pay attention also to your own risk level, your driving record, your coverage and more.

All of these things will help you figure out the right balance of deductible and premium. And talking with a professional will help you as well. You’ll be able to decrease your expenses in a way that makes the most sense for you. Just make sure you know what you’re doing and how it’s going to affect your budget. Changing your deductible could make a huge difference for your monthly bills. But if it would destroy your finances if you make a claim it’s not going to be worth it.