Question

What is deductible in car insurance?  

A deductible is the part of insurance that you choose to pay out of your pocket in an insured claim.  

When you purchase car insurance, the insurer takes care of the financial loss due to an accident or damage. The amount of financial loss covered under the insurance policy is called a coverage limit. The carriers usually offer the maximum coverage limit you are eligible for. The policyholders can choose whether to keep this coverage limit or lower it by adding deductibles. While choosing a deductible is an added financial liability for you, it will also lower your car insurance premiums.  

How does a deductible work?  

Imagine you choose a deductible of $500 and the claim amount is $700, then you need to pay the full $500, and the insurer will pay the rest of the claim amount, which is $200.   

Unlike the coverage limits, the deductible in car insurance won’t be lowered from the previous claim. Hence, you need to pay the chosen deductible amount each time you make a claim. 

When the deductible is higher than the claim  

If the claim is an amount equal to or less than the deductible, the insurer won’t make any payment. The policyholder has to make the payment at their own expense.   

How does deductibility affect car insurance rates?  

The deductibles can lower your car insurance rates. If you think your car insurance rates are above your head, you can balance the rates by adding deductibles to your insurance policy. The higher the deductibles are, the lower the insurance rates get.  

The coverages to which the deductible is applicable  

The deductible is applicable to almost all car insurance coverage except for the liability part. As liability coverage is state-mandatory, you don’t have an option to add a deductible for this coverage. All others, including comprehensive and collision, have a deductible option.