If you are currently looking for car insurance, you might need to understand the different terms companies use. A collision deductible is simply the amount you have to pay first before the car insurance company steps in to cover the cost. So the term refers to the amount you contribute towards the claim amount. Let’s explore your car insurance options in more detail.
What Is a Collision Insurance?
A collision insurance will provide you with financial support in case you are involved in a collision with another vehicle or an object on the road. It is necessary for you to have this type of insurance to avoid paying for the damage out of pocket.
A collision insurance generally covers:
- Any collision or crash you cause on public roads as a driver.
- Collision with other objects as well as cars.
- An accident caused by another driver which affects your vehicle, if they don’t have adequate insurance coverage to pay.
- Your car being damaged by rolling over.
For more information, check out Car and Driver‘s guide on collision car insurance.
A collision insurance, however, will not cover you for the following instances:
- The injuries of other drivers.
- Theft (this is covered by comprehensive insurance policies).
- Accidental damage due to fire or extreme weather (also covered by comprehensive insurance).
Do You Have to Buy Collision Insurance?
It is not mandatory to have a collision insurance in any of the US states, but if you have a vehicle on finance, you might be required to take one out by the lender. You need to remember, however, that if you don’t buy the insurance and you get involved in a road traffic collision, you will need to pay for repairing or replacing your vehicle and the damages, too.
How Does a Deductible Work on Collision Insurance?
When you make a car insurance claim, the deductible on your policy will determine how much your share of the cost is. For example, if you have a deductible of $500 and the claim is for $1,700, you pay $500 and the insurance company pays $1,200. Some car insurance companies set deductibles in percentages instead of dollar amounts. See our recommendations on average car insurance deductibles.
Bear in mind that deductibles are only applied to your own car or property, and not the damage you cause. If you have a separate liability insurance cover, it will not have a deductible amount. In most cases, the company will pay the whole amount for the damages to the other party involved.
How Deductibles Influence Your Car Insurance Premium
There’s a direct relationship between the premium price you pay and your deductible. Generally, the lower you set your deductible amount the higher your insurance cost will be. Consequently, if you would like to reduce your monthly car insurance cost, you might want to increase your deductible.
How to Choose The Right Deductible Amount
Usually, you can set the deductible amount when you apply for a collision car insurance. It is your decision whether you would prefer paying more out of pocket in case you get involved in an accident, or pay more every month to have the full amount taken care of. Some people prefer using their savings to pay for a part of the damage and reduce their premium amount, while others want to be sure that they don’t have to deal with this emergency cost after an accident.
If you set your deductible for $1,000, you need to make sure that you have this in the bank in case you need to make a claim, as the insurance company will only pay the difference. However, if you set your deductible too high, you might end up paying out of your pocket for smaller damages to your car below this amount.
You have to work out how much you are saving when increasing your deductible and whether or not it is worth it. If you only save $80 a year on your premium for increasing your deductible by $200, it might not be a good idea to do so. The Balance explains how you should choose your car insurance deductible amount in detail.
To make the right decision, you will need to assess your risks. How likely is it that you will be involved in a collision in the next year? Of course, you can’t see the future, but if you only use your car in the weekend for pleasure drives, your risk is minimal compared with someone who commutes through peak traffic every day. The lower your deductible is less, the risk you are taking.
You should also consider the potential cost of repair after a collision and the value of your car before choosing a deductible.
The Conditions of Car Insurance Deductible
Collision deductible will only apply if you cause the accident and are found at fault. So if you hit another car, you will have to pay the deductible and the insurance company will pick up the remainder of the bill.
Not many people know, however, that the collision deductible will also kick in if the cause of the accident is negligible. So if your car gets hit by a fallen tree, struck by lightning, you will still be required to pay the deductible on your comprehensive insurance. Collision cover doesn’t apply to these cases.
Once you have filed a claim, you will need to pay your deductible so the insurance company can start the process.
Most of the time, you will need to pay the deductible if you are involved in an at-fault accident. When your car is in for a repair, you will need to pay them your deductible amount, and the insurance company will pay the remainder.
NerdWallet explains what happens when you are hit by an uninsured or underinsured motorist. If another driver is at fault, you will not need to pay the deductible, as their liability insurance will cover the cost. If, however, the repair costs are above the other driver’s limit, you might use your own insurance and your deductible amount will kick in.
Some companies will pay you the claim amount minus the deductible. For example, if your car costs $1,700 to repair and your deductible is $500, you will only be paid $1,200 by the insurance company and have to pay the difference yourself.
Check this out if you need additional information, resources, or guidance on car insurance.
Sources:
What Is Collision Insurance, and What Does It Cover?
How to Choose Your Auto Insurance Deductible
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