The point of car insurance

The point of car insurance is to pay for things you can’t afford yourself.

$2,000 in repairs from a crash.

Not something costing a few hundred dollars.

It makes sense to raise your deductible (what you pay in case of crash) as high as you can afford.

This way you pay for what you can afford, and anything above that, insurance pays.

This lowers your premiums (payment to insurance) since insurance knows it won’t have to pay for every single dent.

Study:

According to economists Richard Thaler and Cass Sunstein,

“policyholders would save about $100 dollars per year on premiums by increasing their deductible from 500 to 1,000. Of course, if they have a claim, they will have to pay up to an additional 500. So, they would have to have a claim once every five years to break even…But claims occur much less often than that...only about 5% of policyholders make claims each year.”

According to this study, people average a claim of $1,000 or more once every 20 years, so the additional $500 paid will be more than covered by the $2,000 saved ($100 saved per year x 20 yrs.)