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The deductible is the amount you pay out-of-pocket to your insurance company before you start paying insurance coverage on a claim. (iStock)
Car insurance is complicated. Whether you’re a new driver or have been behind the wheel for years, going through insurance terminology like “deductible” can be tough.
Your car insurance deductible affects the cost of your insurance, so it is important that you choose one carefully. What deductible is available to you depends on your individual circumstances.
Here’s everything you need to know about auto insurance deductibles.
What is the deductible in car insurance?
If you need to file a claim with your car insurance provider after accident, or when your car is otherwise damaged, there’s a good chance you’ll have to pay a deductible. So, how does the deductible work?
The deductible is the amount you pay out-of-pocket before your insurance coverage begins and begins to pay your loss costs. You are liable for your deductible amount each time you file a claim.
Let’s say you get into a car accident and your car needs repairs for $8,000 — if your deductible is $500, you’ll have to pay $500 before the insurance company pays the remaining $7,500 in damages. Will have to do If your car totals, you will receive a check from the insurance company for the value of the vehicle, deducting your deductible amount.
Your monthly insurance premium payment is separate from your deductible. Not all insurance coverage requires a deductible, but if yours is, you will choose the amount. Your deductible will affect your monthly insurance payment – the lower your deductible, the higher your car insurance premium.
When Shopping for quotes from car insurance companies, experiment how different deductibles will affect your monthly payments.
These are general guidelines:
- Higher deductible = lower premiums with higher out-of-pocket costs
- Higher premiums with lower deductible = lower out-of-pocket costs
You can do this Compare Auto Insurance Quotes For free from multiple insurance providers through Young Alfred, a partner at Credible.
What type of car insurance is deductible?
Car insurance policies can include different types of coverage that serve different purposes, and you can choose to be covered by some or all of them. some of these Coverage options require deductibles Some don’t, so it’s worth paying attention to what deductibles you’ll need to pay. State law generally determines whether a deductible is required.
These coverage types require a deductible.
- collision coverage — This covers you if your vehicle collides with another vehicle or object and requires you to pay for repairs. Collision deductibles are standard but vary by insurer.
- comprehensive coverage — If your vehicle is damaged by an incident such as a fire, an object falling from your windshield, or vandalism, you will file a comprehensive coverage insurance claim. Deductibles are generally required for this type of coverage and also vary by insurer.
This type of insurance coverage does not always require a deductible.
- liability insurance — Liability coverage protects you financially if you are found responsible for the death or injury of another person due to a car accident. It can also help cover repairs to the other party’s damaged property.
- personal injury protection — This type of coverage pays for medical bills, funeral expenses, lost wages and other expenses from the accident, regardless of fault. Deductibles are not necessary for personal injury protection.
- Uninsured/Insured Motorist Property Damage Coverage — If the other driver is at fault in the accident but is not insured or does not have adequate coverage pay for damage to your property, this type of coverage will come to the rescue. Deductibles are sometimes required for this coverage, but not always, and requirements vary by state.
What is the average car insurance deductible?
While your car insurance deductible can vary greatly depending on several factors, including how much you are willing to pay, car insurance deductibles typically range from $100 to $2,500. The most common deductible amount is $500, but remember, there is no one-size-fits-all option. When choosing a deductible. Your budget, your confidence in your driving abilities and how often you drive your car are all factors to consider when you make your decision.
you can easily Compare Auto Insurance Quotes From a variety of insurance providers in minutes via Young Alfred, partner of Credible.
How does my deductible affect my insurance premiums?
Choosing a higher deductible to keep your monthly costs down can be tempting, but it’s not always the right move. Think carefully when selecting your deductible: If you go too high and get into an accident, the cost of filing a claim can be financially devastating. On the other hand, if you choose a very low deductible, you will be responsible for higher monthly payments.
While no two insurance companies have the same deductible-to-premium ratio, generally, increasing the deductible from $200 to $500 can reduce your collision or comprehensive premium costs by 15% to 30%, according to nationwide.
When do I have to pay my car insurance deductible?
You must pay your deductible each time you file a claim, assuming the coverage has a deductible. If the insurance company approves your claim, the deductible will apply to your payment.
You are usually not required to pay for your deductible by writing a check or paying your insurance company. Instead, the insurance company deducts your deductible from the accepted payment of your claim. This means that if you have an accepted claim for $10,000 and your deductible is $500, you will receive a payment of $9,500.
What Factors Should I Consider When Choosing a Deductible?
When choosing a deductible, you need to consider several factors, including your budget. Spend some time calculating how much you can pay for the deductible and how much you’ll save on your monthly premiums by choosing the higher premium.
Ask yourself these questions when choosing a deductible amount.
- Do you have an emergency fund? A solid emergency fund can make a higher deductible possible, which can help you save on monthly premium payments. You need this buffer in the worst case, but if you are a safe driver or don’t drive often, using an emergency fund to cover any accidents may be an option.
- Can you cover your deductible expenses if you get into an accident? This is an important question when considering which deductible to choose. If you get into an accident, can you afford the deductible amount or will you struggle to pay it?
- What is the value of your car? Having a higher deductible may not make much sense if it represents a substantial portion of the value of the car. If your car is only worth a few thousand dollars, consider a lower deductible.
If you’re ready to shop around for car insurance, look to Young Alfred, a partner at Credible. Compare Auto Insurance Quotes And see how much you can save.