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Dave Ramsey urges drivers to weigh higher car insurance deductibles
In an example cited on his show, raising a $500 deductible to $1,000 could cut a $300 monthly premium to $250, yielding $600 a year in savings but $500 more out of pocket risk.
Dave Ramsey says drivers may be able to reduce their car insurance costs by choosing a higher deductible, arguing the decision can make sense when the premium savings are large enough to offset the extra risk, Yahoo Finance reports. Ramsey’s view is that raising the deductible only works if the lower monthly rate meaningfully compensates for the higher out-of-pocket exposure. He suggests that the premium savings be kept aside, potentially in a high-yield savings account, so drivers can cover the deductible if they need to file a claim.
As an example, the article describes a scenario where someone pays $300 per month with a $500 deductible, then switches to a $1,000 deductible and sees the premium drop to $250. In that case, the savings would amount to $50 per month, or $600 per year, which Ramsey frames against the additional $500 of risk.
Ramsey also offers a rule of thumb, saying the higher deductible is generally worth it if drivers can make their money back on the added risk within about three years. Yahoo Finance adds that he contrasts the approach with situations where the premium drop is small, such as a $300 to $290 change, which would take longer than three years to recoup in the example described.