Should You Raise Your Deductible? Do the Arithmetic First
General information, not financial advice. Insurance rules, tax treatment and typical pricing vary by country and by insurer — check your own policy documents and speak to a licensed adviser before making a decision.
Every renewal quote offers the same bargain: accept more risk, pay less each month. Raise your deductible from €500 to €1,000 and the premium drops.
Most people either take it because the monthly number looks better, or refuse it because €1,000 sounds frightening. Both are guesses. It's arithmetic, and it takes about ninety seconds.
The one number that decides it
Everything turns on a single question:
How long do I have to go without claiming before the premium savings cover the extra risk I just took on?
That's the break-even. The formula:
break-even (years) = extra deductible ÷ annual premium saving
Say you're moving from a €500 to a €1,000 deductible and it saves you €120 a year:
€500 extra risk ÷ €120 saved per year = 4.2 years
You need to go 4.2 years without a claim for the higher deductible to have been the better choice. Claim in year three and you're behind. Go seven years clean and you're comfortably ahead.
That's the whole decision. Deductible Trade-off runs it for you.
Why the number surprises people
Insurers rarely offer a proportional discount. Doubling your deductible almost never halves your premium — a typical saving is 10–15% of the premium for a doubling of the deductible.
Work through what that means at different premium levels:
| Annual premium | Typical saving (~12%) | Extra deductible | Break-even |
|---|---|---|---|
| €400 | €48 | €500 | 10.4 years |
| €800 | €96 | €500 | 5.2 years |
| €1,600 | €192 | €500 | 2.6 years |
| €2,400 | €288 | €500 | 1.7 years |
The pattern is worth internalising: the higher your premium, the better the deal. If you're paying €400 a year, a decade of clean driving is a long bet. At €2,400, you're ahead in under two.
This is why blanket advice fails. "Always take the higher deductible" is wrong for a cheap policy and obviously right for an expensive one.
The trap: can you actually pay it?
Here's where the arithmetic and reality part company.
A higher deductible only works if, on the worst day, you can hand over that money without borrowing. Otherwise you've swapped a small predictable cost for a small predictable cost plus the risk of a debt at the worst possible moment.
The test isn't "could I find €1,000." It's "could I find €1,000 in the same week my car is off the road and I'm paying for something else to get to work."
If the honest answer is no, the calculation doesn't matter. Take the lower deductible and treat the extra premium as what it is — the price of not being forced into credit.
If the answer is yes but only just, the sequence matters: build the buffer first, then raise the deductible. Savings Goal Planner will tell you how long that takes at a given monthly contribution. Raising the deductible before the buffer exists is taking on the risk without having the thing that makes it survivable.
And if the alternative is putting a claim on a credit card, run that number honestly before deciding: Credit Card Payoff shows what a €1,000 balance actually costs once interest is included. It's usually far more than the premium you were trying to save.
Where the saved money should go
There's a version of this that quietly fails: you raise the deductible, save €120 a year, and the money disappears into ordinary spending. Now you're carrying more risk and have nothing to show for it.
The saving only becomes real if it's separated. €120 a year into an account you don't touch reaches €500 in a little over four years — which is, not coincidentally, roughly the same as the break-even. You're funding the risk you took on with the money you saved by taking it.
Compound Interest shows what that becomes if you leave it alone longer. 50/30/20 Budget Calculator helps if the honest problem is that there's no room in the month to begin with.
The same maths, other policies
The break-even formula is identical everywhere the deductible/excess trade-off appears. What changes is claim frequency — how likely you are to actually use it.
Car. The most claimed-on of the common policies, so break-even matters most here. Also the one where a claim raises your future premium, which the simple calculation ignores — see below. Auto Cover Estimator
Home. Claims are rarer, so a longer break-even is easier to accept. Many people go decades without claiming on buildings cover.
Health. Different structure — deductibles, co-pays and out-of-pocket maximums interact, and the "claim" is often not optional. Treat the break-even as a floor, not an answer.
Income protection. The equivalent lever is the waiting period — how long you're unwell before payments start. Extending it from 4 weeks to 13 cuts the premium meaningfully, but it means three months of no income. That's a cash-buffer question before it's a premium question. Income Protection Estimator
Life cover. No deductible at all. The lever is how much cover, and for how long. Life Cover Estimator
What the simple calculation leaves out
Three things it doesn't capture. None reverse the method, but all shift the answer.
A claim usually raises your premium. With a higher deductible you'll claim less often for small things, which protects your no-claims discount. That makes the higher deductible slightly better than the raw break-even suggests — the calculation is conservative.
Small claims are often not worth making anyway. If your deductible is €1,000 and the repair is €1,100, claiming €100 and losing your discount is a bad trade. In practice a high deductible turns your policy into what it arguably should be: protection against the disaster, not the inconvenience.
Money now isn't money later. €120 saved today is worth more than €500 paid in four years. Minor at these amounts, but it tilts toward the higher deductible.
Doing it at your next renewal
- Find your current premium and deductible on the renewal notice.
- Ask the insurer for the premium at the next deductible up. Most quote it instantly.
- Divide the extra deductible by the annual saving — that's your break-even in years. (Deductible Trade-off)
- Ask honestly whether you could pay the higher deductible next week.
- If yes and the break-even is under ~5 years, take it. If no, don't — regardless of the number.
- Move the saving somewhere you won't spend it.
Step 4 outranks step 3. The arithmetic tells you which option is cheaper on average; your cash position tells you which one you can survive.
Questions
Is a higher deductible always cheaper long-term? No. It's cheaper if you claim less often than the break-even implies. On a low-premium policy the break-even can be ten years, and a lot happens in ten years.
What if I claim right after raising it? You pay the higher deductible and you're behind by the difference. That's the risk you were compensated for taking — it doesn't mean the decision was wrong, only that it didn't pay off this time. A sound bet can still lose.
Should I lower my deductible instead? Sometimes. If your finances have tightened, paying more premium to reduce a lump-sum shock is a legitimate trade. Same maths, run the other way.
Does this apply to health insurance? Partly. The formula holds, but health plans layer deductibles with co-pays and out-of-pocket maximums, and you can't choose not to need treatment. Read the plan documents rather than relying on the deductible alone.
Why does my insurer's discount seem so small? Because most claims are small ones. Raising your deductible removes the insurer's exposure to frequent minor claims, but they still carry the rare expensive ones — and that's what most of your premium pays for.
Written by Mr John Prosper. Figures shown in euro; the method applies in any currency. This article explains a calculation, not a recommendation — your own policy terms, tax position and circumstances decide what's right for you.
Related tools
- Deductible Trade-off — the break-even, run for you
- Auto Cover Estimator — sanity-check a car quote
- Income Protection Estimator — waiting periods and cover
- Life Cover Estimator — how much, for how long
- Savings Goal Planner — build the buffer first
- Credit Card Payoff — the real cost of funding a claim on credit
- Compound Interest — what the saved premium becomes
- 50/30/20 Budget Calculator — finding room in the month