How to Spend Money Wisely » Insurance

Save on insurance by increasing your deductible

Insurance is one of those necessary evils that we purchase to protect our assets. Without insurance, it’s possible that a loss involving a major (and expensive) asset can become financially devastating. By paying a monthly premium, you spread the risk out, making it manageable. If something does happen, the insurance payout allows you to repair or replace the damage done.

However, even though insurance is necessary, the reality is that it can sometimes be expensive. One way to reduce your monthly premium payments is by increasing your deductible. The more you are willing to pay out of pocket when something happens, the less you’ll pay in monthly premiums.

What is a deductible?

Save on Insurance by Increasing Your DeductibleYour insurance deductible is the amount you pay when you make a claim. If your car breaks down and needs $1,000 of repairs, and you have a deductible of $500 on your policy, you are required to pay $500 out of your pocket, while the insurance company covers the other $500. If you have a $1,000 deductible, on the other hand, it might not be worth it to involved the insurance company at all, since it won’t pay on the claim; you’ll have to pay the entire amount because of your deductible.

Save money with a higher insurance deductible

You can save 10-40% on your insurance premium by increasing your deductible. The reason for the savings is that you are agreeing to take on more responsibility for losses to your property. If you raise your automobile insurance from $500 to $2,000, you are reducing their risk by $1,500, so as with investments, you get a premium reduction for accepting more risk.

This also eliminates the insurance company’s risk that you’ll make small claims that are less than your deductible, which is also helpful for you as you will stay claim-free for a longer period of time.

Can you afford to raise your deductible?

Before raising your deductible, you should ensure that you have the money available to pay the higher deductible should the need arise. You won’t do yourself any favors if you can’t pay your deductible. This could be done either through emergency funds or an available credit line.

The emergency fund is usually the best choice. You can boost your emergency fund by taking the amount of money you save because of your higher deductible and putting it in a high yield account. Then, when you need the money, you can withdraw it to cover yours out of pocket expenses.

Insurance should only be purchased to cover financial losses that you cannot afford to pay for on your own. If you wouldn’t make a claim on your home insurance for $750, why do you have a $500 deductible? Set the deductible to a level that you are comfortable paying, not only to the insurance company but also what you are comfortable paying for repairs that are less than your new amount.

This strategy can save you quite a bit of money over your lifetime. If a situation ever comes up where you do need to make a claim, you will be covered from catastrophic loss and will only need to pay your deductible.


  1. Bryan Jaskolka

    This is such sound advice. I think increasing your deductible is a great way to save money, but only if you can do it, which you’ve outlined that not everyone can. Being able ot pay that deductible should the time ever come is also a great way to use a line of credit. Great post!

  2. Michelle

    I think that raising your deductible is a good idea under certain circumstances. Even though no one can tell the future, if I bought a new car, I would raise my deductible because chances are, I would not need any large repairs done.

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