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Insurance premiums too high? How raising your deductible can boost your savings

Insurance premiums too high? How raising your deductible can boost your savings

If you’re looking for a sure way to lower your auto insurance premiums, the number-one thing you can do is raise your deductible. You may be able to save additional money by shopping around, bundling your coverage and taking advantage of discounts, but nothing lowers your monthly premiums as fast as boosting your deductible.

It all depends on how you handle things after raising your deductible. If you fail to set money aside, that higher deductible could be unaffordable if you need to make a claim. If, on the other hand, you plan carefully, you can self-finance your higher deductible and bank the extra savings month after month. Here’s a strategy to make it happen.

Calculate your savings

Before you raise your deductible, you need to know how much the decision will save you. The amount of premium savings will depend on several factors, from your claim history and driving record to the company and its underwriting standards. In most cases, the higher your deductible the more money you will save, so ask your agent for several different quotes. Compare the amount you’re paying now to how much your new premium will be, then calculate the savings and start working on your plan.

Self-finance your new higher deductible

Once you know how much you will save by raising your deductible, you can use those savings to self-finance the amount you will have to pay up front. Keep in mind that many drivers go decades or even longer without an accident. Take the money you would have spent on your previous policy and put it in a savings account instead. If your old premium was $100 a month and your new one is $70, just bank that $30 every month. Once you have entirely financed your deductible, you can continue to bank those savings, building up your emergency fund in the process.

Build your emergency fund

Speaking of your emergency fund, you can use the financing of your higher deductible as an excuse to beef it up. You do not have to stop with funding the deductible; you’ll continue to accrue monthly savings on your new premium, and there is no reason to waste that extra cash.