How Does a Deductible Lower Your Car Insurance Payments?

With the sudden popularity of frugal living and all the coupon and discount sites on the Internet, it's no wonder that many people are looking for ways to lower their car insurance payments as well as their other expenses. One of the most often suggested methods of saving on car insurance is through the raising of deductibles. When consumers raise the deductibles on their auto insurance policies, they increase the amount of money that they must pay out of their own pocket for the damages that are incurred during an accident.

[Let CarInsurance.com help you find affordable auto insurance now.]

One might wonder why the insurance company would lower your rates for that. The easy answer is this: the more your deductible is, the less money the insurance company is on the hook for after a car accident. If you have a $1,000 deductible, that is $1,000 that the insurance company knows it won't need to spend on paying claims.

Increasing your deductible does not work in a "dollars to dollars" fashion. If you have a $1,000 deductible, it does not mean that you will pay $1,000 less each year on car insurance. The rate setting process relies on many different factors, including the amount of risk you pose. So even though the insurance company won't have to pay that initial $1,000, your risk of getting into a car accident results in claims over the deductible amount plays a bigger role in the determination of premiums.