Auto insurance costs differ from one person to the next. One of the reasons is often the deductible. This is the amount paid prior to the insurer funding the rest of the insurance claim.

Choosing the right deductible amount is important. It impacts how much you'll pay for insurance and claims overall. A higher deductible usually reduces premium costs. But, is it possible to raise the deductible too much?

Why a High Deductible Can Be a Good Thing

A higher deductible often reduces premium costs. This is because it reduces the amount of money the insurance company must pay when a claim occurs. For example, consider a vehicle accident with $2,500 worth of damage. With a deductible of $500, the insurer pays only $2,000. Raising that deductible to $1,000 reduces how much the insurer has to pay. With the new deductible, they might only have to pay $1,500. This reduces their cost, which in turn may reduce your costs.

If you do not file claims often, this can be a good thing. Many vehicle owners rarely file a car insurance claim. That means that high deductible might reduce their premium year after year. In this situation, the cost savings is significant. Yearly, this could amount to a large savings.

Of course, for those who need to file an insurance claim, high deductibles are not as beneficial. If you find yourself filing claims annually, consider the deductible carefully. You don't want to have to frequently pay out the deductible.

Be Careful About a Too-High Deductible

There are risks to having a high deductible. This is the amount you must pay on the claim. In the above example, the vehicle owner must pay $500 out of pocket for the accident. If you raised this to $1000, could you still afford to pay this amount out of pocket? If not, it is a big risk to raise the deductible this high. In this example, the high cost could make it hard for the car owner to pay for the repairs. This may mean being unable to drive the vehicle. Choosing the right level of care is important, but not always easy to do.

Auto insurance costs differ for many things. Discounts and rewards can help drop costs, too. Combine these features with an appropriate deductible. Doing this helps reduce overall costs. Finding the right balance is important, though. Consider how much you can afford to keep on hand. Don't raise the deductible above this. However, putting aside a higher amount can help you save money year after year. Lastly, talk to your insurer about how you can maximize your savings. Your independent agent can often help you determine the right coverage.