Car Insurance Deductibles Explained

By: August 7, 2013 Car Insurance

Car Insurance Deductibles: How Do They Work?

There are a lot of confusing components that surround the purchasing of auto insurance.  Many questions abound:  What level of insurance is required by state law?  What is the difference between comprehensive coverage and collision coverage?   What insurance company is the best fit?

While these are all compelling inquiries, some may feel that they pale in comparison to what might be the most puzzling question of all:  Where should I set my deductible?

Deductible Basics Explained

To answer this important question, you must first take into consideration what exactly is a car insurance deductible.  Essentially, car insurance deductible is the portion of your auto insurance policy that you are responsible for paying in the event of a collision or an Other Than Collision (OTC) collision before the insurance picks up the rest of bill.  This amount can be fully adjusted by the policy holder; and is typically subject to a range between $0 and $1,000, although some insurance agencies may offer an increased deductible amount.

Let’s say you have a collision insurance policy whose car insurance deductible is $500.  Unfortunately, you get involved in a car accident, and the damage done to the car is determined to be around $2,000.  Before the insurance can pick up your car’s tab, you must kick in that $500 deductible.  Once this is done, the insurance will then pay the remaining amount.

The Reason for Deductibles

At first, this may leave you scratching your head as to why anyone would want to pay extra for a higher deductible.  However, the answer to this is rather simple.  Namely, a higher deductible keeps the overall cost of the policy’s monthly premium down.  Conversely, the lower the deductible is, the higher the monthly policy payments will be.

While there is no right or wrong answer as to what policy would be the best fit for you, there are certain cases where having a low deductible may be the better choice.  Those scenarios are:

  • If you drive frequently.  It’s pretty simple:  The more you’re on the road, the greater the chance of you being in a collision or something bad happening to your car, such as a busted windshield or damage caused by a foreign object.
  • If you cannot afford to shell out a high deductible in the case of an accident.  While the temptation to set a high deductible is one that exists, you should only do so if you are confident that you will have the money required to cover the deductible in the event of an accident.  If you don’t have that confidence, this scenario may not work out best.

On the other hand, there are several scenarios in which a high deductible may be the more optimum fit.

Those scenarios include:

  • If you don’t drive a whole lot.  The less you drive, the less your chances of being in an accident.
  • If having lower premiums will help your monthly budget.  Yes, there is risk involved here.  However, the reward is more money to distribute elsewhere on a monthly basis.
  • You need more coverage to your policy.  Having a higher deductible may make it easier to purchase other auto insurance related services, such as emergency roadside assistance.

If you can’t come to a definitive solution even after weighing the pros and cons of car insurance deductibles, don’t guess.  Rather, talk to an insurance company.  There are plenty of them out there to choose from, and they would be happy to answer any questions you may have about deductibles, not to mention any other inquiries you may have about auto insurance.

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Auto Insurance Deductibles 101

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