Deductibles Explained With Actual Numbers
Raising a deductible from $500 to $1,000 is a bet. Here is how to work out whether it is a good one for you.
Your deductible is the amount subtracted from any physical damage payout. A $6,000 repair with a $1,000 deductible pays you $5,000. Raising it lowers your premium, because you have agreed to absorb more of each loss.
The break-even calculation
Suppose moving from a $500 to a $1,000 deductible saves you $190 a year. You have taken on $500 of additional exposure per claim, and you are being paid $190 a year to do it.
Break-even is $500 ÷ $190 ≈ 2.6 years. If you go longer than two years and seven months between claims, you come out ahead.
The number that decides it
Average claim frequency for physical damage is roughly one claim every seven to ten years for a typical driver. Against a 2.6-year break-even, the higher deductible is clearly the better bet on expected value.
Why expected value is not the whole answer
The calculation assumes you can produce $1,000 on the day of the accident without borrowing at a high rate. If covering the deductible would mean a credit card balance at 24 percent APR, the effective cost of the claim is considerably higher than $1,000 and the arithmetic shifts.
Choose the highest deductible you could pay tomorrow without financing it. That single rule resolves most of the question.
Two deductibles, not one
Comprehensive and collision carry separate deductibles and can be set independently. Comprehensive claims tend to be smaller and more frequent — glass, hail, an animal strike — so many drivers reasonably keep a lower comprehensive deductible and a higher collision one.
