Car Insurance Deductibles Explained
Last Updated on January 31, 2020
Most of us have seen the auto insurance commercial with the poor young woman who is desperately trying to find someone who might be able to help her understand what a “deductible” is, and which one she should choose for her auto insurance policy. Understanding how insurance deductibles work, and which one is right for you, is a problem that many auto insurance customers face.
If you’ve never had to use your deductible on an insurance policy, it is understandable that you may not be entirely clear on the concept. The definition of insurance deductibles is simply, a deduction. A deductible is chosen when you include comprehensive coverage, and/or collision coverage on your automobile policy. The deductible that you choose designates how much money you will pay out of your own pocket for expenses and repairs to your own vehicle, in the event of an accident. After your deductible has been met, then your insurance company will come in and pick up the rest of the bill.
For example, you are involved in an auto accident and you are to be found at fault. You file a claim with your insurance company for damages. You have chosen a $500 collision deductible on your policy. The total repair bill for your vehicle is $2200.00. You will be responsible for paying the auto repair shop $500, and your insurance company will pay the remaining $1700.00.
Most insurance companies offer a variety of deductible options for your comprehensive and collision coverage. You will want to check with your auto insurance provider to find out what amounts are available to you. Some lenders will also require that you carry certain insurance deductibles, so checking with them is also wise. The higher the amount of your deductible, the lower your premium will be. The reason for this is that the insurance company sees that you are willing to take a larger portion of the risk upon yourself, and therefore will offer you a lower insurance rate.
The most important thing to remember when choosing a deductible for your automobile insurance policy is to pick a deductible that is within your means to pay, in the event that you are in an accident. Some policyholders are so concerned with keeping their insurance rates down, that they choose a high deductible, such as $1000.00. However, when an accident occurs, and they are required to pay their deductible, they are unable to do so because it’s not in their budget.
When choosing deductibles for your auto insurance policy, taking in to account a deductible that fits all of your needs is key. If you are unsure what deductible truly fits your needs, and exactly how a deductible works, speak to your insurance agent, as they will be able to guide you in the right direction.
Car Insurance Deductible Choices
When shopping for motor vehicle coverage, the best thing that you can do is to consult with someone who really understands auto insurance, especially when it comes to choosing a deductible. Most people tend to favor a $500 deductible, which is the most standard of all deductible choices; however, other people prefer higher deductibles such as $1000, $2000, or even $5000 instead. Your deductible options can depend on the insurance company you are with, your lienholder requirements, and what type (and price) vehicle you have, as to whether you will be allowed to go with one of these higher amounts.
However, for people who are financially able, or for people who don’t have their vehicles financed and can, therefore, do as they please within the confines of the law when it comes to motor vehicle coverage, higher deductibles can be a great way to save money. Choosing a higher deductible saves you money when it comes to your monthly premium payments. You need to be aware though, that choosing a higher deductible means that you’ll be required to pay more out of your own pocket in the event your vehicle is damaged. This is an important detail to pay attention to, as most people don’t think about it when they choose a high deductible to save money on their monthly auto insurance. People, in general, tend to assume that nothing will ever happen to them or their vehicle, and then when something does happen, they usually don’t have the money available to pay the deductible they’ve chosen.
When purchasing a motor vehicle coverage policy online, all insurance companies generally give you the option to pick any deductible you like. Just make sure you have the proper knowledge of how a deductible works before you make your decision. You aren’t required to buy a policy from the first company or agent you speak to, especially if you don’t feel as though you’ve had all of your questions about deductibles answered for you.
Since increasing your deductibles can help to significantly lower your insurance premiums, they are certainly worth discussing with an insurance professional. You must always keep in mind however, that having a higher deductible also means that you will have to pay more out of pocket when it comes to repairing your own vehicle. If you do decide to carry a high deductible on your insurance policy, make sure that you have enough to cover that amount, tucked safely away in a savings account in case you ever need to use it.
The next time you are reviewing your motor vehicle coverage policy, or if you are purchasing a policy for the first time, remember that choosing a deductible will be one of the most important aspects of your policy. Fully understanding what a deductible is, and how it works, is very important.
Important Things To Know About Deductibles
When purchasing car insurance, you will be asked what deductible you want for comprehensive and collision coverage. It’s important that you understand what a deductible is and how it can affect your policy rate. Here we give you 5 things you should know about your deductible.
1. Your Insurance Won’t Pay Anything Until You Pay Your Deductible
If you assume your car insurance company will pay for any and all damages to your car, you’re wrong. Your deductible is the amount you must pay before your car insurance company starts paying on the remainder of the repair cost. So if your repair expenses are $3000 and your deductible is $500, you have to pay that before your insurance will pay the remaining $2500.
2. The Higher Your Deductible, The Lower Your Premium
If you’re looking to save on car insurance, choose the highest deductible. Doing so will lower your car insurance premium substantially. However, be prepared to pay that high deductible if your car is damaged in an accident. Choosing a $1500 deductible doesn’t do you any good if you don’t have $1500 to pay when the time comes.
3. The Lower the Deductible, The Easier It Is to Pay
While choosing a lower deductible means your policy premium will be higher, it will be easier to pay $150 or $300 toward repairs versus $1500 or more. Choose the deductible that you can afford, or put the deductible amount away in savings so you’ll have it when you need it.
4. Both Comprehensive and Collision Require a Deductible
And they’re separate. If your car gets hit by a bear barreling across the road, you’ll pay one deductible for comprehensive coverage. If you get into a car accident the next day, you’ll pay a separate one.
5. If Your Car is Older, Choose a High Deductible or No Coverage
Most states don’t require you to carry comprehensive or collision coverage, though it’s a good idea if your car is newer. However, if your car is older, the value of the car may be less than what it would cost to repair it in the case of an accident. There is no point in paying for coverage if you will only have to consider it totaled and get a new one.
6. Your Deductible Will Cover Several Things
Collision coverage insures your car against just that: damage in a collision, while comprehensive coverage insures your car against many other things like:
Every car insurance company is different and has different coverage for each, so check with yours to see what it will pay for, and when you will be responsible for paying your deductible.
Every car insurance company offers different deductibles, but most range from $150 to $1500. When you look at your policy, get quotes on the range of deductibles to see how much it can change your policy cost. And again, choose a deductible you can afford.