Deductibles are a very important part of insurance. Therefore, there are many details to consider when looking for coverage and they are key to getting the most out of your insurance policy and adjusting it to your needs.
What is a deductible?
The deductible is the cost that you must cover in case of an insured loss in case you have a car accident; is the amount that is subtracted from your claim payment.
Basically, deductibles are a way of sharing risk between the insurer and the policy holder. In general, the higher the deductible, the less you will pay in premiums for an insurance policy. It can represent a specific amount of cost or a percentage of the total amount of auto insurance in a policy. The amount is set out in the terms of your coverage and can be found on the cover or declarations page of your policy. Laws vary from state to state, so deductibles apply differently in each state. Here are some examples.
For certain types of claims, a deductible must be paid. This applies to the following insurances:
Uninsured or underinsured driver
Similarly, in California, you are required to have liability coverage at a minimum. However, if you are financing your vehicle, you will need to obtain full coverage (comprehensive or comprehensive ), which is the case in most other states.
The state of Illinois also has similar laws. Drivers must have liability insurance as a minimum. Also, as in other states, most lenders require the buyer to purchase a policy that covers physical damage and protects the bank’s interest in the financed vehicle.
Therefore, you could consider the cost and need for insurance deductibles. In fact, they can have a positive impact on your premium while providing additional protection in the event of an accident. Therefore, it is worth understanding how deductibles work and how to choose the best one.
How much is the deductible for an auto insurance policy and how does it work?
A deductible is the part of the claim that you pay before the insurer covers the rest. In the event of a $ 500 deductible for a $ 2,500 claim, the insurance company will pay $ 2,000. They will not pay bills with a lower amount and it must be paid first.
Auto insurance deductibles work the same for each type of coverage, and you choose the amount for each. For example, for comprehensive insurance, you can choose $ 500 with lower premiums and $ 1,000 per collision, which generally costs more.
If you are involved in a car accident that can cause $ 3,000 worth of damage to your car where your deductible is $ 500, you would only pay $ 500 for the repair. In the event that your car is totally lost, the insurer will pay you the current value of your car. If the car is worth $ 50,000 and you have a $ 1,000 deductible, the insurer will only pay you $ 49,000. On the other hand, if you are in an accident and the damages are equal to $ 800, the insurer does not pay anything because it will only cover damages that exceed the deductible.
What factors in my auto insurance determine the amount of the deductible?
The type of coverage you choose is an important factor. Some states may also have deductibles for uninsured or underinsured motorist property damage and personal injury protection. Therefore, the type of policy you need and can afford influences the amount of the deductible.
How can I get a low deductible?
Choosing a car insurance deductible depends on your needs and budget. It’s about your comfort level and the risk you can take. Here are some of the questions you should always ask yourself before making this decision.
Do I have an emergency fund?
A $ 1,000 deductible can cripple you at times when you have a claim but don’t have the money to pay it. Therefore, it is best to choose one that you can cover when that time comes.
How much is my car worth?
smiling hispanic woman driving blue car with insurance and deductible
A more expensive car means higher insurance costs. Consider the value of your car when setting a deductible and consider whether the repair costs would be high.
Have I verified the costs of different deductibles?
If it takes you more than three years to recoup your investment, you should probably go for a lower deductible.
Can I change the deductible for different coverages?
Often people choose this option. For example, the comprehensive is usually cheaper, so many people combine it with a lower deductible. The collision, on the other hand, is more expensive, so it is common to have a higher deductible.
How does the deductible affect my premium?
A higher deductible translates to lower insurance rates and higher out-of-pocket costs. A lower one translates to higher auto insurance rates and lower out-of-pocket costs. Therefore, it is always better to choose a policy that you feel most comfortable with. It is essential that you consider the value of the car. It is also important that you can pay the deductible in case there is a claim.
Advantages of a $ 500 deductible
Clearly, the only advantage is that you won’t have to pay a lot of out-of-pocket expenses if you have an accident. So if you have an accident and suffer damages worth $ 1,500, you will only have to pay $ 500 and the insurance company will pay $ 1,000. However, your premium will cost more.
Another detail to remember is that it is the one that most companies use the $ 500 deductible when giving you a quote, since it is the lowest starting point.
Advantages of a $ 1,000 deductible
In most states, the $ 1,000 deductible can save you 8-10% on auto insurance premiums. However, you may still wonder how much the deductible for car insurance costs in general when it is so high.
For example, the annual premium for the $ 500 deductible is $ 800, while with the $ 1,000 deductible, the premium is $ 720, so you would save $ 80 per year. So in just over six years, you will make up the difference. That is, of course, if you don’t have an accident during these six years, your increased deductible will pay off. Otherwise, you would have to pay the rest out of your pocket.
So what is the best deductible?
There are two types of auto insurance that have deductibles: collision coverage and comprehensive coverage. All deductibles for auto insurance range from $ 100 to $ 2,000. However, there is never a bad choice when selecting a deductible. Remember the two main factors when making your final decision:
A higher deductible means a lower auto insurance rate and higher out-of-pocket costs
A lower deductible means a higher auto insurance rate and lower out-of-pocket costs
The best is one where you can pay the amount, but always consider the value of your vehicle.
How would filing a claim affect my deductible decision?
When you file a claim, you are responsible for the deductible established in your policy. Filing a claim often results in an increased deductible that could be in the range of 20% to 40%.
When can I stop paying my deductible?
Since there is no annual deductible upfront payment, you are responsible for paying it when you file a claim. Therefore, you should check your policy again to make sure you can cover it. If you can’t, you should contact your agent to adjust your monthly premiums until it is low enough to be affordable.