Is a Low Deductible Car Insurance Policy Worth It?
KEY POINTS
- Low deductible car insurance policies allow you to use the policy with very little out-of-pocket cost per claim, sometimes as little as $0.
- These policies are generally best for experienced drivers with older lower-value cars, but they're not exclusively for this set.
- There are other benefits a low deductible policy brings, like low out-of-pocket protection if your car is crushed by a tree in a storm or an uninsured motorist hits you.
I am often asked by friends and family about things like insurance policies because of my financial expertise and my work here at Motley Fool Money. A common question I get is about low deductible car insurance policies and whether or not they're "scams."
First of all, any legitimate insurance product that is offered by a legitimate insurance company is not a scam. But it can certainly feel as if you're paying a lot for nothing, if you don't consider everything you're getting with your policy.
The answer, as usual, is that a low deductible insurance policy is right for some people, and it's wrong for others. I, personally, have one.
Who is a low deductible car insurance policy for?
I'm the kind of person for whom a low deductible car insurance policy makes a lot of sense.
I'm a middle-aged driver with no recent accident or ticket history, I own an older car, and I would otherwise have a roadside assistance package. So, the very best car insurance, even with all the bells and every stinking whistle in the store, doesn't cost much more than the minimum coverage for my state, plus what I'd pay to AAA.
I am also currently trying to come out of a serious financial upset (recent divorce), and I'm paying off a lot of debt without a lot of savings. So, if I did have a major accident with liability only, that would put me at serious risk of being without a car in a city where you very much need a car to survive. Even a high deductible full coverage policy would put me in that same risk due to my current lack of savings and divorce-damaged credit.
This is why I chose a low deductible car insurance policy. It was inexpensive compared to the potential cost of having to handle an accident out of pocket, and it offers me a great deal of peace of mind.
That extra few dollars I pay each month has gotten my car unlocked when I locked my keys (AND MY DOG!) inside one April day in 2023, a jumpstart on a frozen and windy January day in 2024, and a window replacement in my own driveway in April 2024, along with the medical bills that the aforementioned dog had related to the incident that caused the need for a window replacement. It's been a rough policy year.
Choosing the right insurance coverage for your car
Sometimes, we need the best car insurance, but other times, we just need cheap car insurance, and you can't always have both. Younger drivers, or drivers with a lot of accidents or tickets will probably fall over dead when they see the cost for a full-coverage policy with a low deductible, so they may have to compromise on what kind of coverage they get.
Other drivers, like those with cars that are on their last legs, or cars that they can easily replace should the need arise, may find that putting the difference between what they'd pay for a low deductible policy and the high deductible policy into an account just for car repairs makes the most sense. For me, that's about $20 a month. So, if I had an accident and my sainted Chevy HHR was totaled, I'd need to go 18.75 years without a problem before I'd save enough money to buy another one in today's dollars.
Drivers have to be really honest with themselves about insurance policies, and not just hope for the best (I love to approach life this way, but it's a toxic financial trait). Here are some questions for drivers to consider:
- Can I afford to replace my car if I cause an accident?
- Am I able to pay for an accident caused by an uninsured motorist?
- Would the difference between base-level car insurance and low deductible car insurance add up quickly enough to pay for a repair if I cause an accident?
- Do I get roadside assistance with the level of insurance I have now? Many low deductible policies come with unlimited roadside assistance for free.
- Will my current auto policy cover my car if it's damaged in a storm?
Only you can decide what your budget should be for car insurance, but keep asking your insurance agent every year for the price difference between whatever you're getting and the absolute top tier offerings.
When you hit that magical spot where there's a relatively small difference between a low and high deductible, you may feel like it's not really significant enough cash to justify having to pay $1,000, $2,500, or even $5,000 out of pocket should you cause an accident or a tree happens to fall on your car.
Our Research Expert
Kristi Waterworth is a financial journalist located in the Missouri Ozarks. When she’s not writing about real estate or personal finance, she’s committing shenanigans with her four dogs.
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