Dave Ramsey says you can save money by raising your car insurance deductible. We did the math to see if it works

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With the price of everyday essentials like gas and groceries rising, Americans will take a little respite wherever they can get it.

Recently, Dave Ramsey offered up an unexpected way to save on car insurance on his radio show that counterintuitively involves taking on more risk (1). In response to a listener’s question about whether to lower or increase their car insurance deductible, he suggested raising it in order to pocket the savings they’d earn on their monthly premium.

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He noted that this strategy only makes sense if the decrease in your premium rate is substantial enough that it makes a higher deductible worth it. You could take the money and stash it in a high-yield savings account. If you ever do need to use it, you can withdraw the money.

“We’re always trying to raise deductibles and raise the amount we have in savings to cover it so we’re giving the insurance company less money,” he said.

The math behind Ramsey’s thinking

Let’s play out this scenario with some basic numbers.

Say you pay $300 per month for your car insurance and have a $500 deductible. If you change your policy and take on a $1,000 deductible, but your premium drops to $250, Ramsey’s approach could be worth it.

A $50 per month drop in your premium rate amounts to $600 a year in savings, compared to the extra $500 of risk you agree to take on. This is just one example of how this could work. But generally, if you can make your money back on the added risk within three years, it’s worth it, Ramsey said.

“Take the savings on your premium, divide that into the additional risk and if that’s about a three, about a three-year risk pattern, you’re probably wise to take the higher deductible in that case,” he said.

A scenario where this doesn’t work, using the same example above, is if your premium only drops by $10 to $290 with a $1,000 deductible. That’s $120 a year in savings. So it would take more than three years for that money to enter your account.

‘Insurance should cover catastrophes, not hangnails’

Ramsey likened taking a higher deductible on your car insurance to doing so with your health plan. You take on upwards of $10,000 in upfront costs for a premium that is way lower than a plan with a lower deductible.

This works out, according to Ramsey, because that amount of debt won’t cause you to go bankrupt on a medical bill. High deductible health plans also tend to be health savings account eligible.

“What causes you to go bankrupt is $350,000 with a NICU stay with a baby or $350,000 with a heart bypass,” he said.

When choosing any insurance plan, you want to make sure you cover the big stuff, Ramsey added. Deductibles are for “little stuff.”

“Insurance should cover catastrophes, not hangnails,” he said. “That’s what you’re looking for.”

Read More: Millionaires under 43 hold only 25% of their wealth in stocks. Here’s where their money is actually going

Lower your insurance burden

Ramsey has a point: Auto insurance has quietly become one of the fastest-growing household expenses. Drivers across the country are paying an average of $1,084 every six months for coverage, up 18% from last year. That means even drivers with spotless records are feeling the squeeze (2).

The good news? A higher premium doesn’t always mean you’re getting a better deal. If you’ve been with the same insurer for years, there’s a chance your loyalty is costing you money. Many insurers quietly raise rates over time, even for customers who haven’t filed claims or received traffic tickets.

That’s why it pays to shop around before simply renewing your policy. Shopping around and comparing rates through services like Insurify can help you uncover cheaper options.

Here’s how it works: Just answer a few basic questions and Insurify will show you the most affordable deals in as little as three minutes.

Those who shop around and compare car insurance rates from different providers on Insurify and choose the best available deal save $1,100 on annual premiums on average.

Not only is the process 100% free, but you could also save up to 15% by bundling your car and home insurance.

Take a closer look at your budget

Finding ways to lower your fixed expenses is important, but lasting financial stability comes from managing the money that’s still leaving your account every month. As prices continue to rise, even modest overspending can slowly chip away at your savings.

Taking a closer look at your monthly expenses may reveal opportunities to cut back without sacrificing much, whether that’s dining out a little less often, reducing entertainment costs or canceling subscriptions.

Apps like Monarch Money can help you build a personalized budget, track your spending and see exactly where your money is going.

Monarch Money puts all your finances under one roof, from your banking statements to your investments. Once you link your accounts — including investments and real estate — you will be able to view every transaction through one clean, searchable list.

The platform can also help you forecast your spending beyond just one month.

Monarch Money also offers a seven-day free trial, so you can take a look around and see if it’s right for you. Even better, you can get 50% off your subscription for the first year when you sign up using the code WISE50.

Build an emergency fund

The best time to build an emergency fund is long before you actually need one.

Unexpected medical bills, home repairs, or family emergencies can derail even the most carefully planned budget. Without cash reserves, many people end up relying on expensive debt or withdrawing investments during periods when markets may be down.

Research from Ramsey Solutions shows 48% of Americans wouldn’t be able to cover three months of expenses if their income disappeared, while 33% have no emergency savings whatsoever (3).

Rather than trying to save several months of expenses immediately, Ramsey suggests breaking the process into smaller milestones — first accumulating $1,000, then steadily building enough to cover three to six months of essential expenses.

A high-yield account like a Wealthfront Cash Account can be a great place to grow your uninvested cash, offering both competitive interest rates and easy access to your money when you need it.

A Wealthfront Cash Account currently offers a base APY of 3.30% through program banks and new clients can get an extra 0.75% boost during their first three months on up to $150,000 for a total variable APY of 4.05%.

That’s ten times the national deposit savings rate, according to the FDIC’s May report.

Additionally, Wealthfront is offering new clients who enable direct deposit ($1,000/month minimum) to their Cash Account and open and fund a new investment account an additional 0.25% APY increase with no expiration date or balance limit, meaning your APY could be as high as 4.30%.

With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, you get access to up to $8 million FDIC Insurance eligibility through program banks.

Keep investing consistently

Reducing costs is only one side of the equation. To stay ahead of inflation over the long haul, your money also needs the opportunity to grow.

Over the long run, stocks have historically outpaced inflation, making consistent investing one of the most effective ways to preserve and grow purchasing power. The S&P 500, for example, has generated an average annual return of roughly 10.5% since 1957.

Of course, markets will always experience periods of volatility, but consistency often matters more than perfect timing. Regular contributions allow investors to continue buying during both market highs and lows, potentially smoothing returns over time through dollar-cost averaging.

Apps like Acorns allow users to invest spare change from everyday purchases automatically in index funds — helping them steadily build wealth without having to think about every market move.

All you have to do is link your cards and Acorns will round up each purchase to the nearest dollar, investing the difference — your spare change — into a diversified portfolio of ETFs managed by experts at leading investment firms like Vanguard and BlackRock. Over a lifetime, a little bit of consistency can go a long way.

With Acorns, you can invest in an S&P 500 ETF with as little as $5 — and, if you sign up today and set up a recurring investment, Acorns will add a $20 bonus to help you begin your investment journey.

– With files from Danni Santana.

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Article Sources

We rely only on vetted sources and credible third-party reporting. For details, see ourethics and guidelines.

YouTube (1); CNBC (2); Ramsey Solutions (3)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.