A $1,000 deductible is better than a $500 deductible if you can afford the increased out-of-pocket cost in the event of an accident, because a higher deductible means you’ll pay lower premiums. Choosing an insurance deductible depends on the size of your emergency fund and how much you can afford for monthly premiums.
How to Choose Between a $500 and a $1,000 Deductible
Figure out how much you would save on your premium with a $1,000 deductible.
The goal is to determine if those savings are worth paying an extra $500 out of pocket after an accident. Car insurance companies typically use a $500 deductible to give quotes, which means you’ll need to make a point of checking how things change with a $1,000 deductible.
Remember that the premium savings will not always be proportional to the extra out-of-pocket costs after an accident.For example, Progressive reports that doubling your deductible from $500 to $1,000 may result in only a 28% decrease in premiums on average.
Consider how much you could afford to pay if an accident happened today.
Accidents can happen at any moment, so if you don’t have a lot of savings or expendable income, a lower deductible is usually a safer choice to avoid financial stress after an accident.
Determine your car’s actual cash value.
If you have an old car that’s only worth $2,500, for example, you probably don’t want to carry a $1,000 deductible. It’s too close to the total value of your vehicle, which means the replacement cost wouldn’t put much more stress on your finances than the deductible itself.
Make a decision based on your financial situation and preferences.
After evaluating your income, monthly expenses, savings, available credit and car value, it should be clear which is a better deal for you: saving monthly on premiums or saving in the event of an accident.
Although $500 and $1,000 are the most common deductibles, you may want to consider other deductible amounts, too. Some companies offer lower and higher options, such as $100, $250 or $2,500 deductibles.
No matter what you decide, be sure to set aside enough cash to cover your deductible before you need to make a claim. To learn more, check out WalletHub’s guide to car insurance deductibles.
This answer was last updated on 05/31/24 and it was first published on 01/26/22. For the most current information about a financial product, you should always check and confirm accuracy with the offering financial institution. Editorial and user-generated content is not provided, reviewed or endorsed by any company.
