How Much Should You Pay for an Insurance Deductible?

As you most likely know, your insurance deductible is what you have to pay in the event of a claim. Most companies offer many different deductibles–$250, $500, $1,000, etc. So, how do you know you have the right deductible?

My rule of thumb with deductibles: never turn in a claim unless it is double your deductible. I can already see where your mind is going – so that means I should have as low as a deductible as possible! Wrong! But WHY?

Let’s say you have a $250 auto collision deductible, and turn in a $500 claim. Here are some pieces of information to help:

1. Collision claims increase your rates the most
2. Most insurance companies rate claims for 5 years
3. The increase in your rates will not drop until AFTER those 5 years

This means that you could see a $100 increase in your auto premium after an accident, and have to pay that for 5 years. So, you received $250 back from turning in that claim, but have paid an additional $500 in higher premiums. In the end, you paid $750. You actually paid more premium by turning in the claim, then you saved by having a lower insurance deductible.

What type of coverage you have determines what type of deductible you should have. Just because it looks better on paper to have a lower deductible does not mean it is less expensive. Talk to your agent to find out if you have the correct deductible or not, and don’t get caught holding onto the false security of low deductibles.