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How Does Your Car Insurance Deductible Work?

How much you save by increasing your car insurance deductable Paying too much for auto insurance? You might be able to lower your cost significantly by raising your deductible, a new survey shows.

A September 2014 survey by Quadrant Information Services, commissioned by, studied how auto insurance premiums go up or down when consumers change their deductibles from $250 to $500 and from $500 to $1,000 or $2,000.

For example, if you raise your deductible from $500 to $2,000, the national average saving is 16 percent.

However, how much you save depends on where you live.  In several states, consumers can save 30 percent or more by raising their deductible.

But in other states, savings were much less.

What is an auto insurance deductible?

An auto insurance deductible is the amount of money a policyholder pays on an insurance claim before coverage kicks in, says Bob Passmore, senior director of personal lines policy for the Property Casualty Insurers Association of America (PCI).

A typical auto insurance policy is comprised of three parts: liability, collision and comprehensive. There is no deductible on the liability portion of your policy, which is mandatory in nearly all states and pays to fix another driver's vehicle when you're at fault in an accident.

But there are separate deductibles on collision and comprehensive insurance. In its 2014 “Your Driving Costs” study, AAA used typical deductibles of $500 for collision and $100 for comprehensive insurance.

Raising your deductible from 500 to 1000 - how much will you save? Collision insurance pays to fix your own car after a crash. And comprehensive insurance pays to fix your own car after damage caused by incidents such as hailstorms, falling tree branches or a collision with deer.

The survey looked at the combined average of collision and comprehensive deductibles.

Experts say the amount you can save by changing your deductible varies widely based on many factors, including the insurer.

"All carriers are different," Passmore says.

Raising your auto insurance deductibles: How much can you save?

Many consumers can save a substantial amount on auto insurance premiums by increasing their deductibles, the survey found. For example, on average across the United States, consumers can:

  • Save 7 percent by raising a deductible from $250 to $500.
  • Save 9 percent by raising a deductible from $500 to $1,000.
  • Save 16 percent by raising a deductible from $500 to $2,000.

Passmore says insurers can afford to offer you lower premiums if you agree to pay a higher share of the claim for incidents that are more likely to happen, such as fender-benders.

Raising your deductible from $250 to $500 is one of the best ways to save on auto insurance, says Amy Bach, executive director of United Policyholders, an insurance consumer advocacy group. "It's almost a no-brainer," she says.

But consumers need to be careful not to raise their deductible so high that they'll have trouble coming up with the money if they need to, Bach adds.

The best and worst states for higher deductible savings

In some states, taking a larger deductible can save you a bundle while, in other states, the savings are much more modest.

Certain states -- Iowa, Kansas, Massachusetts, North Dakota, South Dakota and Wyoming -- consistently came out on top for savings in the survey.

  • Raising a deductible from $250 to $500: The national average savings was 7 percent. However, in South Dakota, you could save an average of 13 percent on your premium. Iowa residents could save 12 percent.
  • Raising a deductible from $500 to $1,000: The national average savings was 9 percent, the survey found. But residents of Massachusetts could save more than double that at an average of 19 percent. South Dakota residents could save 14 percent.
  • Or, raising a deductible from $500 to $2,000: The national average was 16 percent. But residents of South Dakota could save an average of 28 percent. Residents of Massachusetts could save 27 percent.

On the flip side, the worst states for consumers trying to save a few bucks by changing their deductibles are Florida, Louisiana and Michigan.

  • For example, in Florida, raising your deductible from $250 to $500 will save you a mere 4 percent on average.
  • Increasing your deductible from $500 to $1,000 in Michigan saves you just 4 percent, less than half of the national average. This low savings is a further blow to Michigan residents as Detroit resident already pay the highest rates for car insurance out of all major metro areas in the nation.  
  • Going from a $500 deductible up to $2,000 saves you only 6 percent in North Carolina, less than half the national average savings.

Experts say there are hundreds of factors that influence insurance rates and how auto insurers set premiums, including state laws, claims history in the state, the individual company and the policyholder's characteristics, such as age, location and driving record.

But Florida insurance agent Kristofer Kirchen, president of Advanced Insurance Managers, an agency in Tampa, says several factors could contribute to savings being lower in Florida.

For example, he says, Florida has a high number of uninsured drivers, which makes it more likely an insurer will have to cover a collision loss, he says.

Also, Florida doesn't have uninsured motorist-property damage coverage; the cost of that coverage is built into the collision premium, he says.

Should you raise your auto insurance deductible?

There are many factors to consider when deciding whether to increase your deductible to save money, experts say. Here are six tips.

1. Look at your finances.

"You need to think: What can I afford to pay out of pocket?" Passmore says. "For some people that might be $100. For others, it might be $1,000. 

2. Crunch the numbers.

Sit down with an independent agent and figure out how much you'd actually save in certain scenarios, recommends Troy Thompson, an independent agent and principle of Pinnacle Insurance Agency of Minnesota.

For example, if raising your deductible from $500 to $1,000 would save you $500 a year, then you'd make up the cost of the deductible in one year. "If you didn't get into an accident that year, you'd be making money on the deal," he says.

3. Consider other factors.

There are many variables to look at when deciding on a deductible, experts say. For example, the lower the value of your car, the lower your collision deductible should be -- if you decide to carry collision coverage at all, Thompson says.

For example, a consumer with a car worth $1,000 should consider going as low as $100 for their deductible, he says. That's because, if your car is totaled, you'll receive only the retail value of your car minus the deductible, he says.

4. Think about each deductible individually.

Some agents recommend setting different deductibles on your collision insurance and comprehensive insurance. For example, Kirchen generally recommends carrying a lower deductible on comprehensive insurance because it represents a smaller part of the total cost of the premium, so raising that deductible won't save you much.

5. Beware of vanishing deductibles.

Many companies offer "vanishing deductibles," in which your deductible is reduced each year that you don't have an accident. But watch out: You typically pay extra in premiums to get the vanishing deductible, Thompson says.

"I don't recommend it," he says. "It's kind of a gimmick insurance companies use to make you think you're saving money."

6. Bank your savings.

If you do raise your deductible, it's smart to put your premium savings into a savings account until you reach the amount of your deductible.

"That way, you'll have that money when you need it," Thompson says.

Methodology: and Quadrant Information Services calculated rates using the data from the largest carriers in each state.  The averages are based on a married and employed 45-year-old female who drives 12,000 miles per year with policy limits of $100,000 for injury liability for one person and $300,000 for all injuries.   Collision and comprehensive coverage policies were rated with the following deductibles: $250, $500, $1000, and $2000.  The hypothetical driver has a clean driving record and good credit.

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