Have you ever looked for car insurance and wondered, “What’s a deductible?” or ” How Does Car Insurance Deductible Work?” Well, let’s break it down. A deductible is what you pay before your insurance helps out. Let’s answer your top questions about car insurance deductibles. Ready? Let’s go.
When you get insurance, you agree to pay a deductible and a premium. The deductible is the amount you pay if you make a claim. It’s called a deductible because it’s subtracted from your claim payment. Your premium is what you pay regularly for your insurance.
Deductibles help the insurance company share the risk with you. By agreeing to pay a deductible, you can get a lower premium. But not every claim requires you to pay a deductible. We’ll explain more about this later.
What is a Deductible?
When you sign up for an insurance policy, you agree to pay a deductible along with a premium. These are costs you’re responsible for. Simply put, deductibles are the amount you must pay when you make a claim, and this amount is subtracted from your total claim settlement. Your premium, on the other hand, is what you pay regularly for the coverage provided by your chosen policy.
Deductibles allow your insurer to share some of the risk of insuring your vehicle with you, which enables them to offer lower premiums than if there were no deductible. However, not all claims require you to pay a deductible, as we’ll explain further below.
How Does Car Insurance Deductible Work?
Let’s break down how a deductible works in the event of a car accident covered by your insurance. If the damage exceeds your deductible amount, you’ll pay the deductible, and your insurer will cover the remaining costs.
For example, if your policy has a $1,000 collision deductible and the repairs total $11,000, you would pay $1,000, and your insurer would cover the remaining $10,000. You have two options: receive a claims check to cover repairs or have your insurer pay the repair shop directly, with you paying the deductible upon pickup.
However, if the damage is less than your deductible—say $500—you would cover the entire amount out of pocket without involving your insurer.
In the event of a total loss where your vehicle cannot be repaired, your insurer will assess its value. Whether you need to pay your deductible depends on your policy and any coverages that may waive the deductible.
Who decides my Deductible?
You decide your deductible. Your insurer will offer options and suggest a range from a minimum to a maximum deductible. Ultimately, you choose the one that suits your needs. Your decision will depend on how much risk you’re comfortable with.
If you opt for a lower deductible, you’ll pay less out of pocket in case of a claim, but your premium will be slightly higher. On the other hand, a higher deductible means lower premiums, but you’ll have to pay more if you make a claim.
Regardless of your choice, you’re agreeing to cover costs up to a certain limit before your insurer steps in. This agreement helps balance costs and benefits for both you and your insurer.
When do I have to pay a Car Insurance Deductible?
Knowing when to pay an auto insurance deductible can be a bit nuanced. Essentially, if your policy includes coverage with a deductible, you’ll need to pay it each time you claim that specific coverage type.
Comprehensive and Collision coverage
For comprehensive and collision coverage, which handles various damages to your vehicle, deductibles are commonly required. Collision coverage pays for repairs even if you’re at fault, while comprehensive covers non-accident events like vandalism or natural disasters.
Uninsured and Underinsured Motorist Coverage
Similarly, uninsured and underinsured motorist coverage may come with deductibles. These cover expenses from accidents caused by drivers without or with insufficient insurance.
Personal injury protection (PIP)
Personal injury protection (PIP) covers medical expenses and other costs regardless of fault. Depending on your state, PIP may also have a deductible.
Read Also: What Car Insurance Company Has the Best Customer Satisfaction?
What is a good deductible for car insurance?
Determining a suitable deductible for car insurance isn’t about finding a “good” or “bad” choice, as it varies based on individual circumstances. Instead, consider what you could manage to pay if you caused an accident.
Your deductible is the amount you must cover before your insurance kicks in. While a higher monthly premium might be more manageable for some, others may prefer a lower deductible to avoid hefty out-of-pocket expenses after an accident.
For instance, if you opt for comprehensive coverage, deductibles typically range from $250 to $2,000, affecting your premium accordingly.
Although selecting a higher deductible can lower your premium, it’s not always the best option. Accidents can happen despite being a cautious driver, and being unable to cover your deductible could lead to financial or legal issues.
Remember, you’ll pay your deductible each time you file a claim for repairs after an accident you caused. So, while a lower deductible may mean higher premiums, it ensures you won’t face substantial out-of-pocket costs. Ultimately, choose the deductible that aligns with your financial capabilities and comfort level with risk.
Why do I have to Pay a Deductible If I am already paying monthly/annual Car Insurance Premiums?
It’s important to understand that while deductibles and premiums are related, they serve different roles. Your premium is what you pay to keep your insurance policy active and maintain coverage. When calculating your premium, your insurer considers various factors, including your deductible—the amount you agree to pay if your vehicle is damaged.
If you need to make a claim, you’re expected to pay your deductible, as agreed upon with your insurer, in addition to your premiums.
What is a deductible in car insurance?
In car insurance, a deductible is the amount you must pay out of pocket before your insurance starts covering a claim. You can choose different deductible amounts, which impact your premium and the portion you’re responsible for in case of a claim.
Do I need to pay a deductible if I was in a car accident caused by someone else?
Typically, no, but it varies based on the accident type. If another driver causes the accident, their liability insurance should cover damages to your car and medical expenses for you or your passengers. However, if their coverage is insufficient, you might need your underinsured motorist coverage, which often includes a deductible.
Do I need to pay a deductible if I was in a car accident caused by someone else?
Typically, you won’t need to pay a deductible if you’re in a car accident caused by someone else. Their liability insurance should cover damages to your car and medical expenses for you or your passengers. However, if their coverage limits are insufficient, you may need to use your underinsured motorist coverage, which usually comes with a deductible.
How should I choose my auto insurance deductible?
When selecting your auto insurance deductible, choose an amount you can comfortably afford to pay if you need to file a claim. Car insurance deductibles typically range from $100 to $2,000, with $500 being the most common deductible amount.
