Changing the deductibles on your policy impacts what you pay in premiums, and is one of the ways that drivers can manage the auto insurance rates and risks they're comfortable paying. The amount of the deductibles is inversely proportional to the premium, so increasing your deductibles will lower your rates and vice versa. In our analysis, we'll show how varying deductibles can save drivers money on their auto insurance premiums, and provide some pointers on thinking about deductible and premium trade-offs.

How does changing your deductible impact auto insurance premiums?

We took a look at auto insurance quotes for a 34-year-old married man and varied his deductible levels for collision and comprehensive coverage to see how his premiums changed. The graph below shows the average annual premiums for our sample driver's auto insurance policy across six deductible options ranging from $50 to $2,000 per incident from several auto insurance companies for his 2010 Toyota Camry.

Based on our sample driver, switching from $50 deductibles for comprehensive and collision to $250 deductibles would save him a total of $222, or 29% a year on his physical damage premium ($776 to $554). Jumping from $50 deductibles to $1,000 deductibles would more than halve his premium and reduce it by $438 or 56% a year.

The change and potential for savings are greater when our sample driver owns a more expensive car, such as a 2010 Mercedes-Benz E350. As the second graph below will show, all else equal, we find that the impact of changing deductibles is larger than when he had a Toyota, especially once he raises his deductibles past $1,000. He can save a total of $370 on his physical damage premiums by switching from $50 deductibles to $250. Bumping his deductibles all the way up to $2,000 will in turn save him a total of $882 a year.

Changing the collision vs. comprehensive deductible

As the two graphs above show, collision coverage costs about 4 - 5x higher than comprehensive coverage. This means it is more cost-effective to select a higher deductible for your collision coverage (which made up most of the overall premium) and a low deductible for your comprehensive coverage (since you won't be saving much in premiums by increasing that deductible).

However, it's not that simple to recommend that drivers raise their deductible levels to lower their monthly payments. We urge consumers to remember the risk that comes with increasing their deductibles and the potential for having to pay money out-of-pocket for claims. Your insurer is willing to charge you a lower premium because you have reduced their risk by undertaking it yourself. When your deductibles are high, the chance of you filing a claim decreases because your auto repair bill has to cost more than your deductible before you can ask your insurance company to cover the costs.

How should I choose my car insurance deductible?

The best deductible largely boils down to balancing drivers' psychological comfort and budget flexibility, which can be difficult to quantify. If budgets are tight, drivers may be better off selecting a lower deductible — a slightly higher monthly premium may be manageable in order to avoid the potential stress of covering a high repair bill out-of-pocket. If drivers have more savings, they may be fine with lower monthly premiums and a larger portion of their repair cost if they file a claim in the future.

One way we can think about this is to compare potential savings over a few years from lower premiums years against the additional out-of-pocket risk you take on. First, how long have you been accident-free? We'll assume this as a proxy for how many years in the future you'll be claim-free. Take that number of years and multiply the anticipated annual savings, and compare it to the deductible increase. This is by no means a definitive way to decide, but it is another piece of information to help drivers measure the risk trade-off.

This also generally shows that it makes more financial sense to have a lower deductible amount for your comprehensive coverage; consumers save comparatively less while assuming a higher deductible. On the other hand, raising your collision coverage deductible does more to keep the total physical damage premiums affordable.

Average comprehensive collision claim amounts

Most drivers won't file collision and comprehensive claims for repairs to their own cars because they're more conservative with their vehicles. According to Insurance Information Institute data, 6% of policyholders with collision protection filed a claim, and 3% of drivers with comprehensive coverage filed a claim. On the other hand, damage caused to your car because of someone else's fault gets paid out under a claim you file with their property damage coverage.

The average collision claim was for $3,144, and the average comprehensive claim filed was for $1,621. For most policyholders, a $2,000 comprehensive deductible will likely be much higher than they need. What these numbers don't show is the whole range of claims filed, so there will be outliers with much lower and much higher claim amounts. Average claim amounts have been on the rise over the past decade, as we show in this table below.