Your deductible is the dollar amount you agree to pay out-of-pocket each time you cause an accident and make a claim under your collision coverage. The same applies to your comprehensive coverage. (For a general explanation of automobile insurance coverage, see the Better Business Bureau article about thebasics of auto insurance.) In other words, your deductible is the predetermined amount the insurance company "deducts" from the total bill and you pay that amount. If the total damage comes to $3,000 and your deductible is $250, you would pay $250 and the insurance company would pay the remaining balance. In another example, if the total damage is $200 and your deductible is still $250, you would be responsible for paying the $200.

Once you've found a reputable automobile insurance carrier and have decided how much coverage is right for you, the decision about deductibles is the next step. If you are involved in an automobile accident, your collision coverage will pay for the damage to your vehicle; that is, after you pay your deductible for that accident. The comprehensive portion of your insurance provides coverage for damage to your car caused from events other than accidents. For example, a rock cracking your windshield on the highway or a branch falling on your parked car, would be covered through your comprehensive coverage. It is not necessary to apply the same deductible to both your collision and comprehensive coverage. The cost to repair the damage caused by a "collision" is potentially much greater than the non-collision events. You might be able to lower your insurance costs by raising the deductible on your collision coverage and taking advantage of discounts offered by your insurance carrier. So, make the decision about your deductible amounts for collision and comprehensive coverage separately.

Many of us tend to choose the lowest deductible possible, not realizing we could be saving a considerable amount of money each year if we accept a higher deductible. One word of caution here; if you won't be able to manage the larger deductible payment, if and when an accident happens, it doesn't make sense to raise your deductible amount. Another factor to consider is your driving record. If you have a history of accidents, you'll want to plan ahead based on those past trends.

As you shop for insurance, consider creating a table to compare the long-term impact of paying a higher deductible. In the following examples, the numbers used are for illustrative purposes only and do not constitute any actual premium amounts. Insert your own insurance figures into the table to determine your potential savings. Start first by looking at your projected costs on a per year basis:

In this example, during the first year there is no benefit to raising the deductible. Now, look at how much money you can save over time if you increase your deductible:

Over a two-year period, accepting the higher deductible can save you money. What happens if you look at five years at once?

With the addition of each accident-free year, the savings continue to add up.

As you evaluate your automobile insurance options, build a simple table like the examples above to understand your potential costs and savings. Don't forget to take your driving history into consideration when you make your decision about your deductible. For more tips on how to lower your car insurance costs, see the advice from someone who works in the insurance industry:10 Expert Tips for Saving on Car Insurance.

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