Updated: Mar 23, 2022
When looking at collision for auto insurance, many people choose a lower deductible which is typically $500.
The common thought is that I’ll pay out the least amount possible if I am at fault for an accident; however; as the rule goes:
A Higher deductible = Lower car insurance rate and higher out-of-pocket costs
Lower deductible = Higher car insurance rate and lower out-of-pocket costs
So the question becomes why can choosing a higher deductible be beneficial?
For example on Progressive’s website they provide a hypothetical analysis:
For six months:
A $500 deductible costs $225
A $1,000 deductible costs $165
A $2,000 deductible costs $135
So by the math, the higher deductible is the way to go, but some may stress about not having the money.
According to many reports the average person gets into an accident approximately once every 18 years.
Hence, if you chose a $2,000 deductible and divided that by 216 months you’d need to save $9.30 in a side account. If you want to speed that up; let’s say two years, that comes to $83.33.
In my case, I have a $1,000 deductible and that same $83.33 provided me my savings within one year.
The bottom line is that we know there are no guarantees so you need to choose the path that works for you. Regardless, make sure to set money aside or bake that into your rainy day fund.