Insurance Q&A: “What happens to an insurance premium when a deductible is lowered?”

First off, with regard to car insurance, a deductible is the amount of money you are responsible for paying in the event of an accident.

Car insurance policies have physical damage deductibles in place in an effort to reduce the number of small claims filed, as well as to keep the cost of insurance premiums down.

Similarly, health insurance policies have deductibles in place to minimize costs and reduce superfluous visits.

Think of it this way; what would prevent us from filing a claim to fix every paint scratch or ding on our car, or visiting the doctor every time we sneeze if we didn’t have to come up with some of the money for the repair or the visit?

Insurance companies would quickly go out of business if they had to settle a claim for every negative event that occurred in the world.  Remember, insurers have to employ a lot of staff just to process a claim, no matter how small or large it is.

That said, your insurance premium will increase if you choose to lower your deductible.

When shopping for insurance, you’ll typically be offered a choice of deductibles ranging from $250 to $1,000.  The higher the deductible you choose, the lower your insurance premium will be.  Conversely, the lower the deductible, the higher the insurance premium.

I recommend carrying the highest deductible you can afford; this will likely save you money over time.  Sure you’ll have to pay more in the event of a claim, but your insurance premium will cost less.

I also recommend that you do not file claims and pay out of pocket for any property damage you suffer if financially capable, assuming its relatively minor.
Insurance companies use Motor Vehicle Record (MVR) and CLUE reports to determine your individual claims history and subsequently how much to charge you for insurance.

If you’re looking to lower your insurance rate, consider shopping for quotes online.

There are also a number of options available to lower your rate without switching to another insurance provider.  Check out the good driver discount and/or the good student discount.

Both of these options may allow you to keep or increase your current coverage or liability limits without lowering your deductible!