If you have or are looking for car insurance, you must have heard the phrase “insurance deductible.”
When you purchase car insurance, your insurance provider will ask you how much deductible you want. It is a standard procedure.
So what exactly is a car insurance deductible? How does it compare with your car insurance premium? How much should your deductible be? Is there an average car insurance deductible?
What Is Car Insurance Deductible?
Usually, the definition of insurance deductible varies based on the type of insurance you are purchasing.
But there is a standard definition or understanding of deductibles in car insurance.
You pay your insurance premium per month, every six months or annually – based on your insurance policy payment plan.
Then there are situations when you may want to claim something from your insurance provider. For instance, when you are in an accident or when your car is burgled. This is when your insurance deductible comes in.
Your insurance deductible is the amount of money you agree to pay, out of pocket, when you file a claim before your insurance coverage pays for your claim.
There is always an agreed amount of deductible. But that is between you and your policy provider.
Your insurer will require that you agree to pay some of this money during a claim, then they pay the rest for you. The agreed amount you will pay will be deducted from your claim; hence it is a deductible.
Here is an example.
Say you are involved in an accident, and your car gets $2,000 worth of damage. You will then file a collision claim with your provider. If you have a $500 deductible, your insurer will pay the remaining $1,500 for the repair of your car.
Average Car Insurance Deductible
You might have asked whether there is an average car insurance deductible.
Yes, there is an average deductible. But, it depends on the insurance itself. The more common car insurance deductible levels are:
Between these two levels, the average car insurance deductible is $500 because it is the most common with many insurance providers across the country, including Arizona.
However, if a claim is filed, it is generally less than the average cost of car repairs for a serious accident.
The rule of the thumb is that you don’t file a claim if the cost of repairs is less than your deductible. Your insurer will not pay for repairs when they are below the deductible, particularly in Arizona, where car insurance is generally inexpensive compared to the U.S. average.
Furthermore, with each claim, your insurance premium will rise. This is why you should avoid making claims for repairs you can afford hence the importance of the deductible.
However, how much you pay for deductible depends on how much you pay for premiums – every month, every half year or annually. In addition, how much premium you pay also depends on the tier of coverage you select.
This applies to all states, including Arizona.
For instance, a liability-only policy often costs less, while low-deductible collision or comprehensive coverage usually costs more.
In Arizona, the not-so-wide price gap between a liability-only coverage and full coverage with a $500 deductible is an average of $602.
What Are The Types Of Average Car Insurance Deductibles?
Yes, there are types of car insurance deductibles.
Car insurance deductibles only apply to certain specific insurance coverage.
Deductibles do not apply to liability insurance. Your liability coverage covers you for damage you cause to other people or their property, hence not covered by a deductible. So, your insurance coverage will not pay you for damage to your car with a liability policy.
Deductibles commonly apply to three coverages:
- Collision coverage deductible.
- Comprehensive coverage deductible, and,
- Uninsured property damage coverage deductible.
Collision coverage offers protection when you collide with something – a pole, a guardrail, a house, or another car. Unlike liability coverage, collision coverage never factors in your fault. It does not matter what you collide with: as long as it is a collision, you will have your collision deductible come into play.
On the other hand, comprehensive deductible fills gaps left by the collision insurance i.e., the damage that occurs to your car outside of collisions. The damage can include weather damage, vandalism, theft, or animal-related issues.
Like collision, comprehensive also overlooks fault, and it will be deductible whether the damage you are at fault or not.
Uninsured Property Damage Deductible (UMPD)
UMPD closely mirrors collision coverage, but covers physical damage of the car if you are in a not-at-fault accident when the driver either has no insurance or has exhausted the limits on the liability coverage before the car is fully repaired.
Does Car Insurance Deductibles Affect Car Premium Rates?
Is there a relationship between your deductible and your premium.
Yes, there is a relationship between your premium and the deductible.
The premium-deductible relationship is often an inverse relationship, meaning that when one is high, the other is low, and vice versa.
For instance, the lower the deductible you choose, the higher your premium you pay, and if your deductible is higher, your premium will be lower.
The nature of car insurance and car insurance deductibles controls this relationship.
The deductibles represent your demonstration of financial responsibility and capability when you file for a claim after an accident.
This means that by raising your deductible, you will lower the amount of payout your insurance company will pay you in the event of an accident and hence a claim. But, if you keep your deductible lower your future claims payouts may cost the insurance company more.
And if you claim more, your insurance premium rates will rise, which should not be the case.
How Much Should You Choose For Your Car Insurance Deductible?
Since the deductible you choose brings some premium variance, you need to carefully consider your deductible amount.
Some of the things to consider when thinking about your car insurance deductible include:
- Individual financial needs.
- Does your car lease or lien require a certain deductible?
- Are you likely to file a claim frequently?
If you are loaning or leasing your car, you might not have an option of having a deductible or not.
Since it is a loan or lease car, you have an interested third party who will want the car repaired in case anything happens. If you have a high deductible, the third party may have fears about your capability to pay it. Most lease and liens agreements state a $500 deductible or lower.
The Parting Shot
The average car insurance deductible is $500, but $1000 is also common.
When deciding between a $1000 or a $500 deductible – or any other option – you must consider many things:
- How frequently you plan to use your coverage.
- Whether you are leasing or loaning the car.
- If you carry a less experienced driver on your policy – like a teenager.
- If you may file a claim frequently or if you want to avoid filing a claim.
There are many other considerations before deciding on your car insurance deductible.
Be careful and choose wisely.
A lower deductible will mean you pay more in premiums. However, since the deductible is lower, you will spend less out-of-pocket for repairs expenses after an accident.