Gianetta Palmer is a writer for, copywriter, and essayist. Her work has appeared in, Healthline, and The Dyrt Magazine. She is the author of Scrunchie-Fried and writes a lot about car insurance in her spare time.

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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Many variables in car insurance premiums are beyond your control. Once you’ve been in an accident, there’s little you can do to reduce the cost of your insurance until the accident drops off of your driving record. Insurance companies also determine rates based on a number of statistical factors that are predetermined: age, marital status, gender, credit score, geographic location and more.

In an effort to take control of insurance premiums, some drivers seek ways to reduce the cost of their insurance through their own actions. One way to do this is modifying the policy itself. By reducing the amount that the insurance company is responsible for paying after an accident, the insured can cause the rates to decrease.

There are three primary ways to modify a policy to reduce the cost of premiums. A driver can drop coverages, reduce limits of liability or increase the deductible. In each case, there are drawbacks associated with the changes, and it’s up to the driver to decide whether the money saved is worth the increased risk caused by the modified policy.

How Modifying Your Policy Reduces Premiums

Insurance companies can only make a profit if they gather more in premiums than they pay in claims. This is why people who file multiple claims in a short period pay more for insurance; it’s also why expensive vehicles cost more to insure than other cars. The more expensive a person’s claims are to cover, the more an insurer must charge to compensate.

Modifying a policy can decrease the amount that the insurance company pays for any given claim:

— A low liability limit means that the insurance company is capped at that level and will not pay any more for damages. For example, a $10,000 limit will cost less than a $20,000 limit because the insurance company will never need to pay as much for any claim.

— Reduced coverages limit the types of claims that will be filed, which will reduce the overall number of claims. If a driver has a liability-only policy, the insurance company only needs to pay for one vehicle’s damage after an accident instead of two. If the driver only has collision coverage, theft, vandalism and other comprehensive claims are not covered so the insurer will not have to pay for as many incidents.

— A higher deductible increases the amount that a driver must pay out of pocket for repairs, which in turn reduces the overall amount that the insurance company owes for any single claim. Having a higher deductible also increases the likelihood that an insured will opt to simply repair their own damages instead of filing a claim, which reduces the number of claims filed in general.

In every situation, these cost-reducing modifications shift some of the risk to the driver rather than the insurance company. While this saves money on premiums, it puts the driver at risk of financial losses whenever an accident does occur. If you cannot afford to shoulder this responsibility, you should not opt to modify your policy.

When is a High Deductible a Good Idea?

The deductible is the amount of your repairs that you’re responsible to pay out of pocket before a vehicle can be repaired. This means that you need to have the full amount of your deductible available to you for use in an auto accident. If your deductible is too high, you may not be able to pay for your damages and the claims process will be interrupted. Sometimes carrying a high deductible is worth the risk:

— If you rarely drive the vehicle
— If you have enough money on-hand to cover the deductible
— If you only intend to repair the vehicle from major accidents
— If you own the car outright and can choose whether to repair it

In situations where you’re financing a vehicle or are otherwise required to have it repaired of any minor damages, having a high deductible can be a problem. In these cases, it may be worth the higher premiums to improve the protection on your vehicle.

Ironically, the people who most need to save money on insurance are often the same people who cannot afford their deductibles when an accident occurs. Aside from keeping an emergency account available to cover the deductible cost, these individuals can benefit from carefully considering their policy needs. It may be that driving cheaper used vehicles and carrying liability-only insurance is a better deal than paying for full coverage on a newer car. If a car would cost $1,500 to replace, having a $1,000 deductible is illogical; it makes more sense to carry minimal insurance and replace the car when it is no longer functional.

Ultimately, it’s up to you as an individual to decide whether raising your deductible is worth the risk. If you have the money available to cover that portion of your repairs, the monthly reduction in your premiums might be a wise choice; on the other hand, paying a little extra for better coverage may give you the peace of mind that you need. You can check with your insurance company to see how much of a difference a higher deductible would make to your policy so that you can make the best choice to suit your needs.