Are you seeking to get car insurance, or you already have one? When purchasing car insurance, one of the decisions you need to make is the amount of your car insurance deductible you will pay.
Car insurance deductibles are an essential part of the insurance contract. It is important to understand the role deductibles play
when insuring your vehicle.
What is a car insurance deductible? Why do car insurance policies require deductibles? Do you need care insurance deductible? Why? How does it influence your coverage?
What Is Car Insurance Deductible?
Usually, the car insurance deductible is understood differently based on the type of insurance you are purchasing. But there is a standard understanding.
First, you pay your premiums per month, or after every six months and sometimes annually – based on your policy’s payment plan.
Second, you buy car insurance hoping that you’ll be cushioned in the unfortunate event of any mishap or unforeseen financial risk in the form of damages. You hope that if a mishap occurs, you’d claim from your coverage. For instance, when your car is burgled.This is when your car insurance deductible comes in.
Insurance companies often need you to assure them that you take care of some negligible issues. These issues may be a tire burst or sometimes share in the cost of coverage just as an assurance.
You will agree to pay a certain amount of money out of your pocket when you make a claim. This money is to be deducted when the provider pays you the claim.
This means that a car insurance deductible is the amount of money you agree to pay when you make a claim before the insurer pays you. The agreed amount of money you will pay will be deducted from your claim, which is why it is called a deductible.
How Does Car Insurance Deductible Work?
One of the key items of your coverage is always the deductible amount. This is often the first thing the insurer checks when you make a claim.
Your insurer would always require that you pay the deductible before your claim is disbursed. Often, when you make a claim, the deductible amount should be very clearly stated on your claim payment.
Here is an example of how car insurance deductible works:
Suppose you are involved in an accident, and your car gets a $2,500 damage. This is when you file for a collision claim with your insurance provider. If you had agreed a $500 deductible on your policy plan, your insurer would pay you $2,000 towards repairing your car.
On the other hand, if your deductible amount is $1,000, but you only need $800 worth of repairs, you’d not claim because your insurance will ask you to use the deductible money first.
You’ll be responsible for the entire amount because the repair cost doesn’t exceed your deductible amount.
Auto insurance deductibles typically apply per claim. This is to mean that the amount of car insurance deductible you agree to pay will apply each time you file a claim.
However, in some states where there are specific material deductibles, there can be a difference depending on the insurance policies in the state.
For instance, in Florida, where insurers provide hurricane deductibles, the deductibles are specifically applied per season instead of for each storm.
Deductibles generally apply to property damage and not to the liability portion of your car insurance policy.
This is why you would need to have two different deductibles under your car insurance policy – one for collision and the other for comprehensive coverage.
Why Do Car Insurers Include A Deductible On Policies?
As much as insurers want to cushion you from unforeseen financial risk, they also need to protect themselves from exploitation.
A car insurance deductible is meant to reduce the number of small claims insurers may be required to payout.
This is because, without deductibles, people would file claims anyhow for every minor scratch, bump, dent their cars suffer.
Paying out all the claims may be costly to insurers and can cause the cost of car insurance premiums to be higher.
Car insurance deductibles shield the insurer from minor claims and keep the premiums down.
Does Insurance Deductible Influence Your Coverage?
There is a relationship between your deductible and your premium rates.
The premium-deductible relationship is an inverse relationship. This means when one is high, the other is low, and vice versa.
For instance, if you choose a lower deductible, your insurance premium will be higher, and if you decide to pay a higher deductible, your premium will be lower.
This is why increasing the amount of your car insurance deductible is a great way to save money. Why?
The deductible indicates your demonstration of financial capability when you file for a claim. Besides, if you claim more often, your premium rates will rise, which can hinder your application for other insurance policies.
How Much Should You Pay As Car Insurance Deductible?
The deductible you choose affects your insurance premium rates. Generally, every insurance company has a standard deductible for every coverage amount. But you can always choose to adjust the deductible.
As a rule of thumb, standard car insurance deductibles often range from $250 to $2,500. But this figure could be lower or higher depending on the insurer or your circumstances.
Some of the things to consider when choosing your insurance deductible include:
- Individual financial needs
- Personal savings
- Value of your car
- Monthly premium payments
- Level of risk
- What is your likelihood of filing a claim?
Usually, your insurance deductible determines the amount you pay for your monthly premiums and your repair costs after an incident. So, it would help if you chose wisely.
The car insurance deductible should not be worth more than the car’s value. If it is, you are likely not to receive any payout in the event of a claim.
If you are leasing your car, you will need to have a deductible. Since it is a lease car, the third party will want the car repaired in case of any mishap. If you choose a high deductible, the third party may have fears about your capability to pay it.
Can You Adjust Your Car Insurance Deductible?
Yes, it is possible. Almost all insurers allow clients to adjust their deductibles.
As noted above, when you apply for car insurance, your insurer will give you the option to choose your deductible. At that instance, you can:
- Choose the insurer’s quoted standard deductible amount
- Reduce your deductible (this will increase your premium)
- Increase your deductible (this will lower your premium)
Your car insurance deductible is an important factor in calculating your total car premium cost.
Whether you decide to lower your deductible, keep it as quoted by the insurer, or increase it, you need to ensure that you can afford to pay the premiums and the deductible when you make a claim.
If you feel uncomfortable with your current car insurance premium and deductibles, you can adjust it. Whatever you do, look at the costs of your car insurance premium and keep them affordable.