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Balancing (insurance) premiums and deductibles - rules of thumb?

28,756 3,746 October 19, 2017 at 03:38 PM in Finance (2)
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While getting a new car I noticed that the deductibles on our 2 cars were a bit out of whack IMHO - collisions were set at $500 and comprehensive $250. I intuitively think $250 is too low, so I asked our (independent) agent who replied that making them both $500 would save a whopping $32/yr and making them both $1k would save $245/yr. Our total premium is around $2k/yr for 2 cars (and we don't live in the ghetto or have lambo's either).

So that said, I think the extra $250 in comprehensive is worth the $32 (theoretically if we both got in an accident it would take 16 years for that to "pay off") but what about the $500 increase to $1k? The "payback" on that is much quicker at 10 years. (take difference in possible deductible exposure, divide by difference in premiums)

I realize it boils down to how much we could afford should an accident occur (and $1k is fine), but I wonder if there's some kind of rule of thumb on how deductible levels should be set?

[FWIW DW drives a 2014 Pilot and me a 2016 CRV, so collision is still a good idea (and required by loan servicers) on these cars]

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If the difference between $500 and $1000 deductible is $245, then isn't the payback in roughly 2 years (500/245)?

It really depends on a number of things including what you can afford, your likelihood of having a car stolen, vandalized or you getting into an accident and the type of insurance you are dealing with\what you are covering. A $1000 deductible on a house is a lot different than on a car obviously for ex. It also goes down to the avg cost of an actual repair. For instance:

1. Go to a body shop and repairs more or less start at $500 for a fender bender type of thing or a few scratches.
2. Have a window busted and it will cost you anywhere from $250 on up depending on the extent of the damage\type of window.

Also, the higher the deductible, the higher the thresh hold where you will file a claim for small stuff for fear of having your rates increase.


That said, assuming you are comfortable\can afford rolling the dice on a $1000 deductible and are not accident prone, spending $245 to get an extra $500 in insurance per event is not something I would do. In the long run, you will save more by pocketing the $245 each year with the realization that someday you may have to give an extra $255 back. My 2 cents.
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Quote from YanksIn2009
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If the difference between $500 and $1000 deductible is $245, then isn't the payback in roughly 2 years (500/245)?

It really depends on a number of things including what you can afford, your likelihood of having a car stolen, vandalized or you getting into an accident and the type of insurance you are dealing with\what you are covering. A $1000 deductible on a house is a lot different than on a car obviously for ex. It also goes down to the avg cost of an actual repair. For instance:

1. Go to a body shop and repairs more or less start at $500 for a fender bender type of thing or a few scratches.
2. Have a window busted and it will cost you anywhere from $250 on up depending on the extent of the damage\type of window.

Also, the higher the deductible, the higher the thresh hold where you will file a claim for small stuff for fear of having your rates increase.


That said, assuming you are comfortable\can afford rolling the dice on a $1000 deductible and are not accident prone, spending $245 to get an extra $500 in insurance per event is not something I would do. In the long run, you will save more by pocketing the $245 each year with the realization that someday you may have to give an extra $255 back. My 2 cents.
I was considering that we have 2 cars, and those rate differences are for 2 cars, so you either have to halve the rate difference or double the deductible to make a valid comparison.

For glass - we have whole glass policies so there is no deductible at all for replacing a windshield, etc.
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