You know you have to have car insurance to drive your car, and you know it’s a financial safety net in case anything happens. But there are a lot of concepts and words that you need to know. Perhaps one of the biggest insurance buzzwords you should know is deductible. What is a car insurance deductible, and how does it work? We’ll explain.
What is a car insurance deductible?
Okay, here we go:
A car insurance deductible is the amount you agree to pay if you have an insurance claim. You pay your deductible and your insurance company helps you out with the rest of the loss. It’s like you have your portion of the claim and the insurance company has theirs.
For example, let’s say you have a $500 deductible. Then you accidentally hit a deer and have $3,250 of damage to your car. If you have comprehensive coverage and deer strikes are covered, you would pay $500 and the insurance company would pay the remaining $2,750. So, yes, it’s unfortunate that you’re out $500…but on the bright side, you’re not out $3,000.
For car insurance, your deductible typically applies to your collision and comprehensive coverage, not your liability insurance. (That’s because liability insurance covers the other driver and their car if you’re at fault in an accident.) If the deductible applies for the coverage you’re filing a claim under, you usually have to pay your deductible for every claim you file. It’s typically not a case of paying your deductible once for the first claim you file in the policy period and then never having to pay it again.
If you need to check what your deductible is, you can probably find that out on the declaration page of your policy (which should be at the front of the policy.) Remember, if you have any questions, reach out to your agent.
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Does your deductible affect your car insurance rates?
Your deductible can affect your car insurance rates. If you choose a higher deductible (for example, $1,000 instead of $500) you might get a lower premium. That’s because you may be less likely to file a claim and you’re accepting more financial responsibility if a claim happens. However, you have to consider the fact that a higher deductible means you’ll be paying more out-of-pocket if you ever have a claim. It’s a bit of a balancing act.
How do I choose my deductible?
With that in mind, you might be wondering how to choose your car insurance deductible. When you’re trying to choose the right deductible for you, you can consider the following:
How much would I comfortably be able to pay if I have a claim?
You have to think about your budget. How much would you be able to pay if you had a claim without fear of completely ruining your finances and budget? You don’t want to find yourself in a position where you have to pay your deductible, but it’s going to make you feel like you’re cleaning out your bank account. You don’t want to be in a huge pickle if you have a claim requiring you to pay your deductible.
Would I rather have lower premiums and higher out-of-pocket costs if I have a claim, or the other way around?
You have to give some thought to whether you’d rather have slightly higher premiums or higher out-of-pocket costs in the event of a claim. Like we said earlier, choosing a higher deductible can mean you get a lower premium. But it also probably means you’ll be paying more if you have a claim for your comprehensive or collision insurance. So, it’s up to you – which makes more sense for your situation?
What if I’m not at fault in an accident?
If you’re not at fault in an accident, you may be able to get your car repaired by filing the claim under your collision coverage. In that case, you may be able to get reimbursed for your deductible if your insurance company subrogates against the other driver’s insurance company. (Subrogation basically means that your insurance company is going to get back the money that the other driver’s insurance company should pay.) Anyways – if that ever happens, your insurance company can help walk you through the process.
So, that’s a deductible in a nutshell. It’s basically the amount you’ve agreed to pay if you have a claim. You pay your deductible, your insurance company helps out with the rest. While a higher deductible can mean lower premiums, you have to think about how much you could comfortably pay if you ever had to file a claim requiring you to pay your car insurance deductible. It’s important to check and see what your deductible is for the coverages you have for your car.
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