The auto insurance deductible is the
amount of money you will first be responsible for before the insurance
company begins to cover costs. Unlike health insurance, auto insurance
policy deductibles are normally on a per claim basis meaning you would
have to cover these costs every time you file a claim. Higher deductible
policies come with lower annual premiums in exchange for the higher out
of pocket expenses.
Unlike Health Insurance plans where
consumers plan covers all types of medical care, car insurance policies
are actually broken up into multiple types of coverage. Liability
insurance which includes the bodily injury and property damage coverage
do not typically have any deductibles attached. Generally deductibles
area only applicable to two forms of coverage:
- Collision Coverage: Covers damage done to your vehicle when you are in a crash with another vehicle or any stationary object. This covers the cost of repairs and or any replacements necessary for your own care. Collision coverage does not cover the damage you caused to other people’s property
- Comprehensive Coverage: Covers damage done to your vehicle in all instances other than a crash in which you are at fault. This includes things like falling tree limbs, hail or any other types of damage that your car may incur.
How Does The Deductible Work?
Your deductible, typically around $750
will be first applied to any damages. For example if you are in an
accident where your collision coverage would apply and the car you were
driving suffered damage requiring $3,500 in repairs, you would be
responsible for paying $750 of those costs. The remaining $2,750 would
then be covered through the collision coverage by your insurer.
In some cases where another driver is at
fault for the accident you may wish to file a third party claim against
theirproperty damage coverage. Under these circumstances your insurer
may pursue a process called subrogation to recoup the amounts they have
already paid. In the process they may also help to reclaim any amount
that you paid through your deductible.
Choosing the right car insurance deductible amount
Your first consideration when choosing
your insurance deductible is how much you would be able to pay in the
event of an incident. Insurance companies sell you coverage for a
profit, the more risk protection you buy the more they profit and the
lower your deductible the more risk protection you are buying. Your
deductible should be set at a level where if you had to pay the out of
pocket expenses, you could do so reasonably without impacting your
financial situation or lifestyle. It is also important to remember that
since auto insurance deductibles are on a per-claim basis so the
frequency of your claims will be one of the most important factors. If
your policy has a $500.00 deductible and you were involved in 4 separate
claims of less than $500, then you would be responsible for 100% of all
the payments and your insurance would have provided no coverage.
A car insurance deductible is the amount
of money you have to pay toward repairs before your insurance covers
the rest.. For example, if you’re in an accident that causes $3,000
worth of damage to your car and your deductible is $500, you will only
have to pay $500 toward the repair. The insurance company pays the
remaining $2,500.
For many people, increasing the amount
of their deductible is also a great way to save money. That’s because
when you choose a higher car insurance deductible amount,, it could
lower the amount you pay on your insurance premium.
However, it’s important to choose a
deductible that you can afford. Imagine not being able to get your car
fixed because you don’t have money to cover the deductible.
When choosing your car insurance
deductible, think about how much you can pay without causing a lot of
stress in your life? Consider your income, your household budget, your
personal savings, and your available credit.
Understanding how deductibles work and
knowing what you can afford is important to getting the right coverage
at the right price.
