Insurance & Financial

Should I raise my insurance deductible?

Calculate whether raising your car or home insurance deductible will save you money after factoring in the risk of higher out-of-pocket costs.

By ShouldICalc Team

Updated January 2025 · See our methodology

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Trade-offs to Consider

Every decision has pros and cons. Here's what to weigh:

Money

Higher deductibles lower premiums by 10-30%. But you pay more if you have a claim. The math favors higher deductibles for most people who claim rarely.
Time

No time difference once set up. Fewer small claims to file can actually save time.
Quality

Same coverage for major losses. The deductible only affects what you pay before insurance kicks in.
Convenience

Higher deductible means you can't file small claims profitably. You become self-insured for minor incidents.

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Frequently Asked Questions

How much do premiums drop when I raise my deductible?

Typical savings: $250→$500 deductible saves 10-15%. $500→$1,000 saves 15-25%. $1,000→$2,500 saves 10-20%. Exact savings vary by insurer, location, and driving/claims history. Get quotes at multiple deductible levels to see your actual savings.

Is a higher deductible risky?

Only if you can't afford the deductible when needed. The math: if you save $200/year with a $500 higher deductible, you break even in 2.5 years without a claim. Statistically, most people file auto claims every 6+ years. If you have emergency savings, higher deductibles usually win.

What's the optimal deductible?

For most people: $1,000 for auto (sweet spot of savings vs risk) and $1,000-2,500 for homeowners. The key rule: your deductible should be an amount you can comfortably pay from savings without stress. Don't set it higher than your emergency fund.

Should I raise my health insurance deductible?

Health insurance deductibles work differently—you pay more of your medical costs throughout the year. Consider high-deductible health plans (HDHPs) if you're healthy, rarely see doctors, and can fund an HSA. The tax advantages of HSAs can make HDHPs worthwhile even with higher out-of-pocket costs.

Should You Raise Your Insurance Deductible?

Insurance is about managing risk. A higher deductible means you’re self-insuring for smaller losses in exchange for lower premiums. Here’s how to calculate if that trade-off makes sense.

How Deductibles Work

The basic trade-off:

Lower deductible = Higher premium, less out-of-pocket when you claim
Higher deductible = Lower premium, more out-of-pocket when you claim

Example auto insurance:

Deductible	Annual Premium	You Pay if Claim	Insurance Pays if $5,000 Claim
$250	$1,600	$250	$4,750
$500	$1,450	$500	$4,500
$1,000	$1,250	$1,000	$4,000
$2,500	$1,100	$2,500	$2,500

The Break-Even Calculation

How long until premium savings cover the higher deductible?

Break-even years = (New deductible - Old deductible) ÷ Annual premium savings

Example: Raising auto deductible from $500 to $1,000

Deductible increase: $500
Premium savings: $200/year
Break-even: 2.5 years without a claim

If you go 2.5+ years without a claim, the higher deductible saved you money.

Real Savings by Deductible Level

Auto Insurance (typical driver):

Deductible Change	Annual Savings	Break-Even Period
$250 → $500	$100-175	1.4-2.5 years
$500 → $1,000	$150-300	1.7-3.3 years
$1,000 → $2,500	$100-200	7.5-15 years

Homeowners Insurance:

Deductible Change	Annual Savings	Break-Even Period
$500 → $1,000	$75-200	2.5-6.7 years
$1,000 → $2,500	$100-250	6-15 years
$2,500 → $5,000	$75-150	16-33 years

Sweet spots: $1,000 auto, $1,000-2,500 home (best savings-to-risk ratio)

The Probability Factor

How often do people actually file claims?

Insurance Type	Average Claim Frequency	Average Claim Amount
Auto (collision)	Every 6-10 years	$3,000-4,500
Auto (comprehensive)	Every 15-20 years	$1,500-2,500
Homeowners	Every 10-15 years	$8,000-15,000
Renters	Every 15-20 years	$2,000-4,000

The math almost always favors higher deductibles: If you claim every 7 years and save $200/year: $1,400 saved - $500 extra deductible = $900 net savings

The Opportunity Cost of Capital

What if you invested the premium savings?

$200/year saved, invested at 7%:

Years	Total Invested	Investment Value
5	$1,000	$1,150
10	$2,000	$2,760
20	$4,000	$8,200

Even if you have a claim, the invested savings may cover the higher deductible.

When Higher Deductibles Make Sense

Raise your deductible if:

☑️ You have emergency fund > deductible amount
☑️ You rarely file claims
☑️ You’re a safe driver with good record
☑️ You want to save on premiums
☑️ Small claims aren’t worth the hassle anyway

The self-insurance mindset: Many financial experts suggest treating your deductible as “self-insurance.” You’re essentially betting that your premium savings will exceed your claims over time—and statistically, they usually do.

When to Keep a Lower Deductible

Keep lower deductible if:

☑️ You can’t afford the higher deductible if needed
☑️ You file claims frequently (accident-prone)
☑️ You live in high-risk area (frequent hail, theft, etc.)
☑️ The premium savings are minimal
☑️ You’d stress about the financial exposure

Critical rule: Never set a deductible higher than you can comfortably pay.

The Hidden Benefit: Fewer Small Claims

Higher deductibles discourage filing small claims, which is often good:

Small claims raise your premiums (sometimes for years)
Claims history affects future insurability
The claims process costs you time
Some claims aren’t worth the hassle at any deductible

Example: $800 fender bender with $500 deductible

Insurance pays: $300
Your premium increase: $150-300/year for 3-5 years
Net cost of claiming: $150-1,200 more than just paying yourself

With a $1,000 deductible, you’d pay out-of-pocket anyway—and avoid the rate increase.

Health Insurance: Different Calculus

HDHPs (High-Deductible Health Plans) have unique considerations:

Advantages:

Lower monthly premiums
HSA eligibility (triple tax advantage)
Often better coverage after deductible

Disadvantages:

High out-of-pocket before insurance kicks in
Can discourage needed medical care
Bad year can be very expensive

HDHP math:

Factor	Traditional Plan	HDHP
Monthly premium	$600	$350
Annual premium	$7,200	$4,200
Deductible	$500	$3,000
Max out-of-pocket	$4,000	$6,000
Premium savings	—	$3,000
HSA contribution	No	Yes (tax-free)

If you’re healthy, HDHP + HSA contributions often beats traditional plans.

How to Calculate Your Optimal Deductible

Step 1: Get quotes at multiple deductible levels

Call your insurer or use online tools
Get actual numbers, not estimates

Step 2: Calculate break-even for each level

Break-even years = Deductible increase ÷ Annual savings

Step 3: Assess your claim probability

Good driver? Claim every 7-10 years (auto)
Safe home? Claim every 10-15 years (home)

Step 4: Compare break-even to claim frequency

If break-even < typical years between claims → Raise it
If break-even > typical years between claims → Keep it lower

Step 5: Verify you can afford it

Emergency fund must cover deductible
Multiple policies? Fund must cover multiple deductibles

The Action Plan

If you decide to raise your deductible:

Shop around first - Different insurers have different deductible savings
Verify emergency fund - Can you pay if needed?
Consider all policies - Auto AND home deductibles matter
Put savings aside - Move premium savings to a dedicated fund
Review annually - As claims history changes, optimal deductible may change

The Bottom Line

For most people with emergency funds, higher deductibles are mathematically optimal.

The typical calculation:

$500 → $1,000 deductible on auto insurance
Saves: ~$200/year
Break-even: 2.5 years
Average time between claims: 6-10 years
Expected net savings over 10 years: $1,500+

The key insight: Insurance is for catastrophic losses, not small inconveniences. Self-insuring for small losses through higher deductibles usually saves money long-term.

Just make sure you can actually pay the deductible if needed. The worst outcome is a high deductible you can’t afford when something happens.

About This Calculator

Premium savings estimates based on insurance industry data and rate comparisons. Claim frequency data from Insurance Information Institute. Individual savings vary by insurer, location, and risk profile. Get actual quotes for your specific situation. Last updated January 2025.