A car insurance deductible represents the amount of money that you have to pay out of your own pocket whenever you make an insurance claim. They are usually a fixed amount, but in some cases, they represent a certain percentage of the total insurance policy amount.
What Happens When You Have a High Deductible?
Having a lower deductible means that you would have to pay larger monthly insurance premiums but also that you would be paying less out of pocket in case of a claim. A higher deductible, on the other hand, reduces the costs of your premium, although it brings higher costs in case of an insurance claim. In other words, as Progressive mentions, when you choose an insurance plan you have to decide if you want to pay a higher insurance premium or pay more out of pocket in case of a claim.
The Most Relevant Factors When Choosing a Deductible
The Balance mentions these factors as the most important when deciding between a higher and a lower deductible:
- Can you afford to pay out-of-pocket in case of an accident? Choosing lower monthly payments and a higher deductible can be a good choice only if you can afford to pay any eventual out-of-pocket expenses in case of an accident. If you don’t have an emergency fund and if an eventual insurance claim would seriously affect your finances, you are probably better off with higher monthly payments and a lower deductible.
- What’s the payback? Deciding on a deductible also depends on how often you estimate you’ll be needing to make an insurance claim. According to Investopedia, if you choose a higher premium and a lower deductible, you will have to calculate how often you would have to make a claim for the lower deductible to make sense. Likewise, if you choose a lower premium and a higher deductible, you will only save money if you avoid needing to make any insurance claims.
- Do you have lots of accidents? If you have frequent accidents, a lower deductible is the way to go, according to InsuraMatch. This makes sense, as you will pay less out of pocket each time you need to use your car insurance. However, if you have a clean driving record, lower premiums and higher deductibles are usually the right choices for you.
- What is your adversity to risk? The lower your deductible, the less you risk being affected financially in case of a claim. Estimating how often you will need your car insurance is ultimately somewhat of a gamble, so choosing the right balance between your regular insurance payments and your deductible also depends on your adversity to risk.
- What’s the price of your vehicle? As The Balance mentions, the more expensive a vehicle is the more it costs to insure it. This is why high deductibles may make sense if you own an expensive vehicle, as you will be saving on premium costs. If, however, you drive an inexpensive vehicle, high deductibles may not make sense, as you will be paying them in full in case of a claim and they may cost you more than the actual car repair.
- Can you separate deductibles? WalletHub explains that collision coverage insures your car for accidents, while comprehensive coverage insures it for damages that are unrelated to you, like weather phenomena, vandalism, and other similar events. Some insurance companies offer safe drivers the possibility to have high deductibles for accidents and lower deductibles for comprehensive insurance. This means that if you are confident in your driving abilities but still want good coverage for random events, you can reduce costs by paying smaller premiums for collision coverage.
When Do You Have to Pay the Car Insurance Deductible?
In most situations, if another driver hits your vehicle you won’t have to pay the insurance deductible and your car’s repairs should be covered by their liability insurance, according to Understand Insurance. If you have collision coverage, you can use your own insurance to repair your vehicle, still without paying a deductible, and your insurance company will arrange reimbursement with the other driver’s insurer.
If, on the other hand, the damages caused to your car are more expensive than the other driver’s policy coverage and you use your own policy to cover the difference, you may be charged the deductible. You can then choose to sue the other driver and get that money back.
If you cause a collision, your liability coverage will pay for the damages you create and you will pay the deductible to fix your own vehicle. Also, if the collision is both your fault and the other driver’s fault, you will probably have to pay a part of your deductible. If the accident is 100 percent your fault, there aren’t many ways to avoid paying the deductible other than negotiating lower repair costs with a mechanic, a 21st Century Insurance article mentions.
What’s the Takeaway Regarding Car Insurance Deductibles?
Remember these important facts and details regarding car insurance deductibles:
- A deductible is the amount of money you have to pay yourself before the insurer covers the rest.
- You get to choose how high or low your deductible is depending on the type of coverage (collision and comprehensive).
- The most important deciding factor in case of an accident is who’s at fault. If you’re not at fault, you are not likely to have to pay a deductible.
- If you can’t afford to pay for your deductible, you probably won’t be able to use the car after the accident even if it’s repaired, as you no longer owe the insurance company, but the mechanic working on your vehicle. They can legally keep the car until the owed amount is paid or you agree on a payment plan.
- Analyze the deductibles for many different rates before deciding on a plan, as you need to figure out what the best ratio is based on your particular situation and driving record.
Choosing the right amount of car insurance deductible can significantly help your finances in case of an at-fault accident. However, before committing to an insurance plan, you need to analyze all options and make a decision based on your personal preferences.
Sources:
How do car insurance deductibles work?
Understanding Car Insurance Deductibles
Should I Have A $500 or $1000 Auto Insurance Deductible?
How to Choose Your Auto Insurance Deductible
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