Is it better to have a $500 deductible or $1000 deductible?

There is no single "better" option—it comes down to your emergency savings and your risk tolerance. The golden rule of insurance is: a higher deductible lowers your monthly premium, while a lower deductible increases it.

To decide between a $500 and $1000 deductible, ask yourself these two questions:

1. Do you have $1,000 in emergency savings right now?
If you get into an accident tomorrow, you will need to pay the deductible out of pocket before your insurance covers the rest of the repair bill. If pulling together $1,000 would put you in debt or cause severe financial stress, you should stick with a $500 deductible.

2. What is the "break-even" point?
Ask your insurance agent to quote both deductibles. Subtract the annual cost of the $1000 deductible policy from the $500 deductible policy. This shows your annual savings. Then, divide $500 (the difference in deductible costs) by your annual savings to see how many years you'd need to go without an accident to make the higher deductible "worth it."

Example: If switching to a $1000 deductible saves you $100 a year on your premium, it would take you 5 claim-free years to save enough to cover the extra $500 you'd owe in an accident. If you frequently get into fender benders, the $500 deductible is likely the safer financial bet. If you are a highly cautious driver who hasn't had a claim in a decade, the $1000 deductible will save you money in the long run.