Buying auto insurance doesn’t have to be a complicated issue, but if you’re not paying attention, some of the seemingly small decisions that need to be made in structuring the right policy could end up costing you plenty over the long-run. Aside from the coverage components, such as the comprehensive and liability coverages, the big component that drives the pricing of auto insurance is the deductible – the amount of out-of-pocket expense you must cover before a claim is paid. The amount of your premium payment is based, in part, on the amount of your deductible. If you select a low deductible, you will pay a higher premium.

Many people are concerned with the possibility of having to come out-of-pocket with a lot of money to repair their car in the event of an accident, so they will choose a low deductible. While they may feel some level of comfort knowing they will not have to spend as much of their own money, they may be spending hundreds of dollars more to pay the additional premium costs. The better strategy for most people, especially if the car is older, is to select the highest deductible and then bank the difference in premium. Better to have that money accumulating in your own emergency fund than in some insurance company’s own investment portfolio.