Raising your deductible without regretting it

What the deductible changes on your bill

The Texas Department of Insurance puts it plainly: a deductible is the amount of a claim you pay yourself. It applies to the coverages that pay for your own car. Collision pays to repair or replace the car after an accident; comprehensive pays if it is stolen or damaged by fire, flood or vandalism. After a covered claim, you pay the deductible and the insurer pays the rest, up to the car's actual cash value (what it would cost to replace, minus depreciation). Liability coverage, which pays for damage you cause to others, has no deductible for you to raise. In some states, Texas among them, uninsured motorist claims carry a deductible too.

The California Department of Insurance notes that you usually pay a lower premium if you choose a higher deductible. Only part of the premium moves, though. In the NAIC's national figures for 2023, a car carrying all three main coverages averaged $1,438 a year: $737 for liability, $464 for collision and $238 for comprehensive. The deductible works on the $702 of collision and comprehensive, not on the liability share. If your policy is liability only, there is no deductible to raise; see limits and deductibles for how the pieces fit.

• Collision and comprehensive are separate coverages. Ask whether you can set a different deductible on each, so you can raise one and keep the other low.
• The deductible applies per claim. Two claims in one year mean paying it twice.
• Each insurer prices the step differently. The saving from $500 to $1,000 at one company says little about the saving at another.

Putting a number on the trade

Say your quote with a $500 deductible is $1,800 a year, and the same coverage with a $1,000 deductible is $1,650. Raising the deductible saves $150 a year. In return, every collision or comprehensive claim costs you $500 more than before. Divide the extra risk by the yearly saving: $500 ÷ $150 is about 3.3. You need roughly three and a third claim-free years before the lower premium has paid for one claim at the higher deductible.

The ratio does the deciding. If the same step saved only $60 a year, the break-even would stretch to more than eight years, and one fender-bender in that time would wipe out the saving. If it saved $250, you would be ahead in two years. Enter your two real quotes in the deductible break-even calculator to see your own numbers.

When a lender sets the limit

Collision and comprehensive are optional under most state laws, but the Texas Department of Insurance notes that if you still owe money on your car, your lender will require them. The loan terms can also name the largest deductible you may carry. One example: Deseret First Credit Union says on its loan insurance page that it asks borrowers for collision and comprehensive with deductibles of $1,000 or less. Under terms like those, a move from $500 to $1,000 is allowed and a move to $1,500 is not.

Breaking the rule can cost more than it saves. The same lender says that if the required coverage isn't kept, it may buy collateral protection insurance and add the cost to the loan. That coverage protects the collateral, and the lender says it doesn't provide the liability coverage the law requires. Caps differ from one contract to the next, so read your own.

• Read the insurance clause in your retail installment contract or lease before you call the insurer.
• Ask the lender in writing if the contract is unclear, and keep the answer.
• Check the declarations page after the change, so the lienholder and the new deductibles appear as you expect; our guide to reading your declarations page shows where.

When a higher deductible doesn't fit

A deductible you can't pay is not a saving. If a $1,000 bill after a crash would go on a credit card at the Federal Reserve's recent average of 22.36% for accounts charged interest, the interest can eat the premium saving. It also doesn't fit when the yearly saving is small next to the extra risk, when you have had more than one claim in the past few years, or when a young or new driver in the household makes another claim more likely.

The opposite case is a driver with a solid emergency fund, few claims and a quote that shows a real drop in price. For that driver, a higher deductible turns money that would go to the insurer every year into money that stays in the bank until it is needed.

How to raise it safely

1. 1 Ask your insurer for two or three quotes on the same coverage with different collision and comprehensive deductibles, such as $500, $1,000 and $1,500.
2. 2 Compute the break-even for each step with the calculator. A step that needs many claim-free years to pay off is rarely worth it.
3. 3 Check your loan or lease for a maximum deductible.
4. 4 Move the full deductible into savings before the change takes effect, and leave it there.
5. 5 Compare the rest of the bill too. Paying the premium in full or dropping an add-on you don't use can save more; see trimming optional coverages.

Questions drivers ask