Auto Insurance Deductible – How it Works

Your Auto Insurance Deductible – How it Works

choose the right auto insurance deductibleOften, when we think about insurance, we think that our auto insurance should cover all of the costs associated with being in an accident, specifically, damage to our own car. Unfortunately, this is not the case.

What is a Deductible for Auto Insurance?

A deductible is the amount of money you will pay in the event of a covered accident, assuming you purchased either collision or comprehensive coverage. Basically, a deductible is you sharing in the cost of damages caused with your insurance company. As an FYI – a deductible does not apply to damage you may cause to another person or property. That type of damage would fall under your liability coverage which does not have a deductible attached to it.

What if Your Repairs Are Less Than Your Deductible?

I think the best way to illustrate how this would work is with an example: It’s a snowy day and you accidentally run off the road and into a telephone pole, causing no damage to the pole but about $950 in damage to your car. You chose a $1,000 deductible when you purchased your policy to save a bit on your premium and you were comfortable with the thought of paying a $1k deductible. In this case, since the damages are less than your deductible, you would pay the entire $950 in repairs, your insurance company would pay zero. Why? Because your deductible is on a “first out” basis, meaning the deductible amount you choose is paid first and then your insurance company pays the remaining balance of repairs.

front end damage to a camaroTo illustrate a bit further: In the example above, lets assume the damages were $1500. You would pay the shop $1,000 and your insurance company would pay the shop the balance of $500, or whatever the amount remaining was unless your company determined that the cost to repair you car were greater than it’s current market value. In this case, your insurance company would determine the market value of your car and then pay you, less your deductible, for that amount. More on this later…

How to Choose the Right Deductible?

In general, the higher your deductible the lower your rates are likely to be. So, if you choose to purchase collision and/or comprehensive coverage, you will need to select a deductible for each coverage. Your deductible is basically the amount you agree to pay in the event of an accident in which your car is damaged. Since we now know that your deductible comes out first, when you select a higher deductible you are saying you will pay for more of the damages which then means your insurance company will pay less. If your company pays less, they will typically charge you less for those coverages since their exposure will also be less.

Tips on Choosing a Deductible

  • Here are a few quick tips or things to consider when choosing your deductible
  • If you had to pay a deductible today, could you afford to write a check for the amount of your chosen deductible?
  • Calculate the benefit – ask for a quote based on at least two deductible amounts ($500 and $1000), noting the difference on the premium for a year. If the difference in premium is more than the difference between the 2 different deductibles then go with higher deductible.
  • Consider your vehicle model and make – if you are driving an expensive car, the cost of repairs are likely going to be much higher than if not driving an expensive car. Therefore, choose the higher deductible to keep your rates down. Most likely, just about any damage to your “more expensive” car are going to be far higher than your deductible.

Choosing a deductible, though seemingly mundane, is important as it will directly impact your premium and your “out of pocket” cost in the event of an accident.

Cheap Insurance Tips believes that auto insurance should be affordable for everyone, regardless of your history. It is for this reason that we have brought together our valued insurance partners to help you find good coverage at affordable rates with a reputable insurance company. Start your FREE quote today!

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