One of the difficult things to understand about car insurance is how deductibles work. Deductibles for car insurance work differently than deductibles for health and other types of insurance. With things like health insurance, you only pay your deductible once per year. However, with car insurance you pay your deductible per incident rather than per year. If you have multiple incidents, you will be paying multiple deductibles.
It is important to understand how deductibles and premiums work together to protect you in case of an accident. This will help you make the best decisions when crafting your car insurance policy with your insurance agent.
What Types of Coverage Have a Deductible
Not all types of car insurance coverage have a deductible. Liability insurance, which is required by every state to legally be on the road driving, does not have a deductible. If you have a car accident and you are at fault, you will not have to pay a deductible for the insurance to cover the damages to the other party. However, if you have damages to your car, that falls under a different type of coverage.
Uninsured motorist coverage is also usually provided without a deductible. If an uninsured motorist hits your car, you can file a claim under this type of coverage to get your damages covered by your insurance company. Some states require that you have uninsured motorist coverage, but not all states have this requirement.
Collision coverage and comprehensive coverage both usually have a deductible. Collision coverage is what covers your damages if you are at fault in an accident. Comprehensive coverage is what covers you in the case of vandalism or acts of God, such as a branch falling from a tree and causing damage to your vehicle. Hail damage also falls under comprehensive coverage. In these cases, you would need to pay your deductible before any costs were covered by the insurance company.
Deductibles Per Incident Over Per Year
Each time you have an incident that your insurance has to pay a comprehensive or collision coverage claim, you will have to pay your deductible before the insurance company pays anything on the claim. If your deductible is $750, you will have to pay that amount toward the damages that you incurred with your vehicle. Even if you have already paid a deductible during that year, you will have to pay the deductible for the new incident.
How Deductibles and Premiums Work Together
Your deductible for each type of coverage could be different from each other. You may have a $500 deductible on your collision coverage, but a $1000 deductible on your comprehensive coverage. It all depends on what options you choose when your policy is crafted by your auto insurance agent. If you purchase your car insurance online, you usually have the option to choose your deductible as you craft your policy.
As a general rule, the higher your deductibles are, the lower your premiums are. You can greatly reduce your monthly cost for car insurance by choosing higher deductibles for your collision and comprehensive coverages. However, keep in mind that if you have an accident you will have to pay this amount right off the top. If you typically don’t have access to $1000, you might want to choose a lower deductible and pay more money in monthly premiums.
If you have to pay more than one deductible in a year, it could cause your premiums or your deductible amount to increase. Your car insurance company will use the claim information from each incident to determine how much risk you have. If you pay several deductibles in one year, it could cost you a lot more in higher premiums.
Planning for Deductibles
If possible, it is a good idea to have your deductible amount saved in a savings account or rainy-day fund. This way if you have an accident or need to file a comprehensive coverage claim you will have the money you need to pay the deductible. Many people are unable to come up with the deductible amount right away. With more and more Americans living paycheck to paycheck, additional expenses such as deductibles really aren’t in the budget. Saving this money aside for a rainy day is the best option if you will have a high deductible.