A deductible is an amount the policyholder must pay out of pocket before the insurance company covers the remainder of a claim. Car insurance deductibles are part of every of car insurance policy that includes comprehensive and collision. They also increase the cost of coverage.
Understanding how car insurance deductibles work, and how they can affect the cost of your policy, is important for making informed decisions about your car insurance coverage.
In this article, we will talk about car insurance deductibles, including how they work, the types of deductibles available, and the factors influencing deductible amounts. So keep reading, and let’s get into it!
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How Car Insurance Deductibles Work?
When you purchase a car insurance policy, you will be asked to choose a deductible amount if you buy full coverage (comprehensive + collision coverage). This is the amount that you will be responsible for paying out of pocket in the event of a covered claim.
For example, if you have a $500 deductible and file a claim for $2,000 in damages, you will pay the first $500, and the insurance company will cover the remaining $1,500.
The deductible amount you choose can have a significant impact on the cost of your car insurance policy. Generally, higher deductible amounts will result in lower premiums, while lower deductible amounts will result in higher premiums.
Pro Tip: Make sure to only agree to a high deductible if you can afford the cost! If you have a claim the insurance company will require you pay your deductible prior to them covering anything!
It’s important to note that you must pay the deductible amount each time you file a claim. For example, if you have a $500 deductible and file two separate claims in a year, you will be responsible for paying $1,000 out of pocket.
It’s also worth noting that there may be certain types of claims that are not subject to the deductible. For example, some car insurance policies may have a $0 deductible for claims related to glass damage or windshield repair.
Examples of deductible amounts and their impact on premiums:
- $500 Deductible: This is a common deductible amount that may result in a moderate increase in premiums compared to a lower deductible.
- $1,000 Deductible: Choosing a higher deductible such as $1,000 may result in a more significant reduction in premiums.
- $2,500 Deductible: This is a relatively high deductible that may result in a significant decrease in premiums, but also requires the policyholder to pay a larger amount out of pocket in the event of a claim.
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Types Of Car Insurance Deductibles
There are two main types of car insurance deductibles: comprehensive and collision. My clients often call asking to put “full coverage” on their vehicle, which is another name for comprehensive and collision coverage!
Comprehensive Deductible: This type of deductible applies to claims that are not related to a collision, such as theft, vandalism, or damage from natural disasters.
Collision Deductible: This type of deductible applies to claims that are the result of a collision, such as an accident with another vehicle or a single-car accident. In addition to comprehensive and collision deductibles.
There are several other types of car insurance deductibles that may be included in a policy:
Personal Injury Protection (PIP) Deductible: This type of deductible applies to claims for medical expenses and lost wages that result from a car accident.
Uninsured/Underinsured Motorist (UM/UIM) Deductible: This type of deductible applies to claims for damages or injuries caused by an uninsured or underinsured driver.
Factors That Affect Car Insurance Deductibles
Several factors can influence the deductible amounts on your car insurance policy:
- Age: Older drivers may be offered lower deductible premiums due to their lower risk of accidents.
- Coverage Type: Different types of coverage, such as collision and comprehensive coverage, often have separate deductibles. Policyholders can choose different deductible amounts for each type of coverage.
- Vehicle Type: The make and model of a vehicle can influence the deductible amount. Luxury or high-performance vehicles may have higher deductibles due to their higher repair costs.
- Personal Characteristics: Some insurers may consider personal characteristics, such as the policyholder’s age, driving history, and credit score, when determining deductible amounts.
- Geography: The location where a policyholder lives and drives can affect their deductible amount. For example, living in an area with higher crime rates or natural disasters may result in a higher deductible.
- Policy Limits: The policy limits, or the maximum amount that an insurer will pay out on a claim, can also affect the deductible amount. Higher policy limits may come with higher deductibles.
- Deductible Waivers: Some insurers may offer deductible waivers, which allow policyholders to file a claim without paying their deductible. These waivers may come at an additional cost or be included as part of the policy.
Tips For Managing Car Insurance Deductibles
There are several ways to manage your car insurance deductibles and ensure that you are prepared in the event of a covered claim:
- Lower Your Deductible: If you are concerned about being able to afford the deductible in the event of a claim, you may want to consider choosing a lower deductible amount. This will result in higher premiums, but it will also reduce your out-of-pocket costs in the event of a claim.
- Save For Unexpected Deductible Payments: It’s a good idea to set aside some money in a savings account specifically for unexpected deductible payments. This can help you to be prepared in the event that you need to pay a deductible, and can also help to reduce the financial burden of a claim.
- Review Your Deductible Amount Regularly: It’s a good idea to review your deductible amount on a regular basis to ensure that it is still appropriate for your needs. As your circumstances change, you may find that your ideal deductible amount also changes.
- Understand The Pros And Cons Of High And Low Deductible Amounts: Choosing a high deductible can result in lower premiums, but it also means that you will be responsible for paying a larger amount out of pocket in case of a claim. On the other hand, choosing a low deductible can result in higher premiums, but it also means that you will have lower out-of-pocket costs in a claim. It’s important to weigh the pros and cons of high and low deductible amounts and choose the option that is best for your needs.
In conclusion, car insurance deductibles are important and can significantly impact the cost of coverage.
Several factors can affect the deductible amounts on your car insurance policy, including your age, driving history, and type of vehicle.
Make sure to carefully weigh the options of having full coverage or going with just liability. Having a deductible is more expensive when paying a monthly insurance premium but well worth it when you have a car accident!