Auto Insurance

Deductibles and Their Impact on Car Insurance?


car_deductibleWhen you buy car insurance, your insurer will likely ask you to choose a deductible for your physical damage coverage. The deductible is an amount you pay towards the cost of a claim, so it is a good idea to choose wisely. Whatever amount you choose might impact both your ability to receive coverage and how much you will pay. Here’s how deductibles might impact your policy.

What is a Deductible?

If your car insurance contains collision and comprehensive damage coverage, then the policy agrees to pay for certain damage to your car. However, most policies won’t cover 100% of the costs of your damage. Instead, they will share the cost of the claim with the insured driver by assigning a deductible.

A deductible is an amount of money that the policyholder agrees to pay towards the cost of their claim. Usually, the insurer offers several choices for the amount the policyholder can choose. This might be $500, $1,000, $2,500 or a similar amount.

So, if you back into a building and damage to your car, then you will pay the deductible towards the costs of the repairs. If the car has $3,000 in damage, and you have a $500 deductible, then you pay the $500. Your insurer then pays $2,500 for the remaining damage costs.

Choosing the Right Deductible

You must choose your policy’s deductible carefully, for a couple of reasons:

  • Remember, your auto insurance deductible is a cost that you must pay. Therefore, you must be able to afford this cost. If you can more easily pay a $1,000 deductible as opposed to one worth $5,000, then choose the $1,000 option.

  • Sometimes, if you choose a higher deductible, then your premium cost might go down. That’s because by taking a higher deductible, you take some of the cost risk away from the insurer. While raising your deductible might mean a lower premium, that still means you might have to pay more in case of vehicle damage. A slightly higher premium cost might prove more budget-friendly in the long run.

  • If the cost of damage is less than the value of your deductible, then your insurer won’t pay for your claim at all. So, if your vehicle has $750 in damage, but you have a $1,000 deductible, then you’ll have to pay for all the damage yourself.

You can often update your deductibles both during your policy term and when it is time to renew coverage. Review your existing damage deductibles, and see if you can still reasonably afford them. This can tell you if you need to reduce or increase coverage.

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