Car Insurance Deductibles

What are car insurance deductibles and how do they work?

When you shop around for car insurance you would have come face to face with the term called car insurance deductible. Your prospective car insurance company or the agent assigned to you might explain it to you but chances are you might find the jargon jarring.

Here is a simplified breakdown of the explanation of a car insurance deductible.

A deductible is what you will pay from your own pocket after being involved in an accident. After you file an insurance claim with your insurance company they will then pay the remainder of the amount. The most common insurance deductible amounts are $500 and $1000.

A deductible can be applied to only specific insurance coverage options. A deductible cannot be applied to your liability insurance. If you have opted for liability coverage in your car insurance then you will be covered for damage you caused to other people on their property. Your liability insurance will pay for the damages you caused if you are the reason for the accident.

At the end of the day, it will come down to your evaluation of what is best for your family's needs. Your car insurance company or the agent appointed by the company can only guide you by presenting various scenarios but you will need to take the final decision. It is highly recommended that you do not let your agent decide the final rate for you as they will not have your best interest at heart for you.

How does my deductible work?

The definition of a deductible depends on the form of policy to which you apply. The meaning of your deductible differs even between home and auto insurance. A premium is a part of your financial obligation for repairs to your car for your car insurance.

If your policy has a line of $5000 in coverage. A low deductible of $500 means your insurance company is covering you for $4,500. A higher deductible of $1,000 means your company would then be covering you for only $4,000. Since a lower deductible equates to more coverage, you'll have to pay more in your monthly premiums to balance out this increased coverage.

Many car insurance providers will take the deductible out of the indemnity payment (the money you receive from a claim), or the deductible will be paid directly to a repair facility if you prefer to fix your car.

When it comes to car insurance deductibles there are generally two ways: choose a higher deductible to get a lower car insurance premium or prefer a lower deductible to reduce your out-of-pocket expenses in the case of an accident.

Factors that determine your deductible

The structure of car insurance deductibles and premiums are based on risks. The basic idea of a deductible is that if you have a high deductible on your policy, then you are less likely to file claims thus making you less of a risk for your insurance company.

But if you opt for a lower deductible, then you are more likely to file a claim for repairs. This means that your premium will be on the higher side because your insurance company will rate you as a high risk.

There is no uniformity in the plans when it comes to everyone. For some having a high deductible is not right and for some having a lower deductible is not right. When you decide on your deductible always factor in your lifestyle, driving style, and your financial status.

What coverages can be included in deductibles?

Your deductible can be applied to these kinds of coverages: Uninsured property damage, Collision, and Comprehensive.

• Uninsured property damage coverage (UNPD) - An uninsured property damage coverage or UNPD coverage, as known in the car insurance circles, on the surface can look similar to collision coverage. If the accident is not your fault and the other driver does not cover insurance, or if his liability coverage is depleted before your car can be completely fixed, this kind of coverage can provide adequate protection for your car.
• Collision deductible - If you opt for a collision deductible on your car insurance policy, it will provide protection when you collide with an inanimate object like a lamppost, wall, any type of vehicle, etc. Your collision coverage will not check if you are the one at fault for the cause of the accident. A collision deductible applies to what you pay.
• Comprehensive deductible - Comprehensive coverage from your car insurance company is intended to fill the holes that collision coverage does not cover. Full coverage of vandalism, animal damage, and even theft is given. When you apply for the claim, your car insurance company will not check if the accident is caused by you or not.

What car insurance coverage types do not require a deductible?

If you have zero-deductible car insurance, you've chosen policy options that don't require paying anything toward a covered claim upfront.

If you're considering purchasing a zero-deductible coverage, keep the following points in mind:

• No-deductible policy: Deductibles are designed to let you share the risk of an accident with an insurer. You purchasing coverage with no deductible places all of the risk on the insurance company. The insurance provider accepts the higher risk by charging a higher premium for a zero-deductible (or low-deductible) policy.
• Deductibles for each coverage: A deductible is an amount you must pay out of yourself for car repairs before your insurance kicks in. Each coverage on your car insurance policy has its deductible. As a result, one coverage could have different deductibles.
• State Laws determine Deductibles: The availability of zero-deductible coverage varies by state and policy. Certain coverages are required to have a deductible in some states. On the other hand, some states have rules and coverage options that allow for the waiver of a deductible for certain types of claims.

High vs. Low car insurance deductibles

You can select between a greater or smaller deductible when purchasing auto insurance in most circumstances. Deductibles for car insurance often range from $100 to $2,000. Our drivers' most popular deductible is $500, but there is no right or wrong answer.

Finally, everything comes down to personal preference:

• Lower auto insurance rates and higher out-of-pocket expenditures with a higher deductible
• Reduced deductibles result in higher car insurance rates and lower out-of-pocket expenses.

Make sure you can afford to pay your deductible out of pocket in the case of a claim by selecting an auto deductible amount that you're comfortable with. It's also crucial to think about your driving history and the possibility of filing a claim.

You may choose a higher auto insurance deductible to avoid an accident. Still, if you've had previous accidents and frequently drive on congested roads, you're more likely to submit a claim and pay a deductible.

What Is the average car insurance deductible?

In general, drivers have deductibles of $500 on average. Deductibles of $250, $1000, and $2000 are also common. You can also choose separate deductibles for comprehensive and collision coverage.

You may, for example, have a $1000 collision deductible and a $500 comprehensive deductible, or vice versa.

For a six-month collision insurance policy, Way.com obtained the following quotes:

• $84 per month for auto insurance with a $2000 deductible
• $89 per month with a $1000 deductible
• $129 per month with a $500 deductible
• $182 per month with a $250 deductible
• $250 per month with a $100 deductible

How will your car insurance deductible impact your rate?

Changing your policy's deductibles affects how much you pay in premiums, and it's one of the ways drivers may control the auto insurance rates and risks they're willing to take. Because deductibles are inversely related to premiums, increasing your deductibles lowers your rates and vice versa.

We'll explain how different deductibles can save drivers money on their vehicle insurance rates and some tips on how to think about deductible and premium trade-offs in our research.

The figure below shows how changing a deductible might affect the cost of collision coverage, based on a six-month policy costing $420. You are increasing your deductible from $100 to $250 results in the biggest savings while increasing it from $1,000 to $2,000 results in the smallest savings.

When do you pay a car insurance deductible?

Deciding on your car insurance is not a difficult task, but it is also not very easy. You have to make a lot of decisions like: ‘How much should be your collision coverage?', ‘How much liability coverage should you get?', ‘What is the level of deductible you should opt for? Should it be a higher deductible or a lower deductible?' These decisions look to be based on personal choices but when you get involved in an accident, the choices you make can be the difference between getting your car fixed and giving up your car.

The deductibles on your car insurance will kick in when you make a claim. This can be payable to your repair shop or your insurance provider depending on the amount, your provider's general deductible policy, and most importantly your plan. More often than not you'll pay your deductible directly to your repair shop and your insurance provider will take care of the remaining bill.

Always remember, in the end, paying your deductible is entirely up to you. If you do not want to submit a claim, then you don't have to pay your deductible. In that case, you will be responsible for the complete cost of the repair that your car will undergo.

Factors to consider when choosing a car insurance deductible

One of the most important questions that you should ask yourself is: how do you choose the right deductible amount for your needs?

• If you opt for a higher amount, your car insurance company might not help to pay for the damage. In that case, your premium will be on the lower side.
• If you opt for a lower deductible, the car insurance company will charge a higher premium. In that case, you will have to spend less money on the damages to your car.

Before you go ahead and sign the dotted line to finalize your deductible you should ponder over a few questions. Based on the answers to these questions you should finalize your deductible amount. There are no right or wrong answers to these questions. The answers that you get from these questions have implications for your financial health in the long run.

Do I pay a deductible if I hit a car?

If you hit a car, you do not have to pay a deductible until your car is damaged, and you need to submit a collision claim. If you cause an accident, your liability insurance covers the other driver's medical claims and car repairs, and there is no deductible with liability insurance.

Do I pay a car insurance deductible if I'm not at fault?

If your insurance concludes that you are not at fault in a car accident and the at-fault driver's insurer accepts responsibility, you won't have to pay your deductible! Instead, any damage will be covered by the at-fault driver's third-party liability insurance.

How much can you afford to pay out of pocket?

The federal government sets the maximum out-of-pocket limit. Individuals will have to pay $8550 out of pocket in 2021, while families would have to pay $17100.

Does your lender have Deductible requirements?

Unfortunately, your coverage deductibles may be dictated by the conditions of your loan. If you raise your deductible, your lienholder may not notice immediately away. Still, if they do, they will add force-placed insurance, also known as collateral protection insurance, to your monthly payments. If you don't keep up with your lender's insurance requirements, you risk losing even more money by paying for coverage you don't need.

When are you not required to pay your car Insurance deductible?

Fortunately, you may not be required to pay your deductible in certain circumstances. However, these circumstances should be considered while determining the best course of action following an accident.

The following are the most significant deductible exclusions:

• Another driver is at-fault: If the negligence of another motorist caused the accident, you might not have to pay a deductible. However, if they decide to pursue payment from the other motorist, their insurance or your insurer may cover your damages. Therefore, you would be completely compensated for the cost of the damage and your deductible.
• Liability claims against you: If another driver files a claim against your liability insurance, you won't have to pay a deductible. This is because liability coverage doesn't have one. However, if the damages exceed your liability policy limitations, you may not be completely protected.
• Glass Repair: In most areas, insurance companies such as Progressive will provide free glass repairs, though windshield glass is a different story. Because these are repairs rather than replacements, your insurance policy does not cover them, so your deductible is not applicable.

Is there a relationship between my Deductible and Premium?

If you opt for a lower deductible, it means a higher amount to be paid at the beginning or end of the month. If your deductible is on the lower side, then you will have more coverage from your car insurance company and also the bonus of paying less from your own pocket. Whereas a higher deductible means a reduced cost in your insurance premium.

How are Premiums and Deductibles related?

In the last few years, a new trend has emerged. There has been an increase in deductible from $500 to $1,000 and an average of 8-10% reduction in premium costs. Though this was dependent upon the state. Michigan saved on an average only 4% for the deductible raise while Massachusetts saved an average of 17%.

Mistakes to avoid

One of the common mistakes committed by car owners when they choose a deductible is choosing the highest deductible just to save money on their premium. In case of an accident having a high deductible could have serious financial consequences.

Although $1,000 is often considered an average deductible, it's becoming more common for individuals to mitigate their risk by opting for lower deductibles of $500 or even $250.

Deductible or Premium: Your choice

You will have to balance the benefits and drawbacks of either paying your deductible or covering your own loss while forgoing your insurance claim. You have to decide whether filing a claim would increase the premium in the future, so you will pay the insurance provider more over time, or even more than the sum that you can have paid out of your pocket.

Although your penalty could be a massive cost in this era. You will save more money in the long run, understanding the effects of paying the deductible vs. off-pocket – namely how it can impact your premium.

What if my car insurance deductible costs more than my repairs?

Suppose your auto insurance deductible is larger than the cost of the damage to your car. In that case, you'll be responsible for the entire bill because the insurer only covers losses that exceed your deductible. You may not need to file a claim in certain situations.

Key Takeaways

When it comes to car insurance deductibles please keep the following in mind:

• When it comes to finalizing the limit on your car insurance deductible, it will boil down to your choices. Various factors like your personal comfort level and the level of risk you are willing to take will come into play.
• Your premiums will be lower if you increase your deductible. This is because you agree to bear a greater share of car damage expenses. Conversely, the lower your deductible, the higher your auto insurance premium because you will be paying less out of cash.
• Your insurance rate is determined by various factors other than your coverage limits and deductible.
• If you're thinking of raising your deductible to help save money, think twice. You'll be left paying that deductible out of pocket if you file a claim - and there are better methods to cut your auto insurance prices, including shopping around for new coverage and making sure you're getting every available discount.