How to Ramp Up Your Deductible and Ramp Down Your Insurance Premium

There are many variables that go into determining the rate you pay for car insurance, from your driving record and the type of vehicle you drive to where you live and what kind of job you do. Each of these factors will influence your final premium, but determining what role each of them plays could prove difficult or even impossible.

The rate setting formula is a closely guarded secret, one the insurance companies are not anxious to share. And while detangling that particular knot can be an exercise in frustration, there is another relationship that is quite easy to figure out.

That relationship is the one between deductible and monthly premium, and it is one you have almost total control over. In the insurance world, deductibles and premiums move in opposite directions, and raising the one can send the other tumbling.

Increasing your deductible by just a few hundred dollars could sharply reduce the amount you pay for your car insurance on a monthly basis, but how do you make the change safely? The last thing you want is a bill you cannot pay or a car you cannot afford to fix, so it pays to proceed with caution when making the change.

Review Your Emergency Savings

One of the biggest impediments to a higher deductible is simple fear. Drivers worry that they will have an accident the minute they increase their deductibles, and that they will be stuck with a huge repair bill they cannot pay.

Those fears are certainly justified, but they can also be easily overcome. If you want to set those fears to rest and raise your deductible without worry, you can lean on your emergency fund.

Hopefully you already have an emergency fund in place. If not, you can slowly build it over time, using the potential for lower insurance premiums as inspiration. Once you have a reasonable amount saved, you can slowly ramp up your deductible, banking the premium savings as you go.

Ask for Quotes

When you sought quotes for your car insurance, you probably did so with a specific deductible in mind. Maybe you simply accepted the lowest possible deductible, reasoning that paying less for repairs was a good thing, and now you are stuck with a premium that is too high.

If you want to see where you stand, and how much you could save, call your agent and ask for some additional quotes. Ask what your premium would be if you raised the deductible by $100, $250, $500 or more. Once you know how much you can save, you can lay the groundwork and start ramping up your deductible.

Bank Your Savings

Now that you know how much you can save by raising your deductible, you can start banking those savings. If you are uncomfortable going from a very low to a very high deductible, look for a happy medium and do that instead.

When you pay your car insurance premium every month, take the cash you save and put it in the bank. That way the money will be there if you need it, and if not it can continue to accumulate. This strategy will take discipline to implement, but if you stick with it you could save a ton of money without putting your finances at risk.

There are many ways to reduce your car insurance premium, from exercising good driving habits to trading that sports car for a staid sedan. But if you want to reduce the amount you pay quickly, nothing is more effective than increasing your deductible. The steps listed above can help you raise your deductible in a safe and predictable manner, so you can get the protection you need at a price you can afford.