Shopping for car insurance can be confusing! What does all the jargon mean? Comprehensive and collision coverage? Insurance deductible? Premiums? At-fault accidents? You just want a policy that’s going to protect you, your family, and your car should something unexpected happen.
In this guide, we’ll cover one of those terms: deductible. What is a deductible when it comes to auto insurance, and what does it say about your policy? Let’s take a look at auto insurance deductibles.
What is a Deductible in Reference to Auto Insurance?
Whether you’re talking to an agent on the phone or shopping for car insurance online, one of the most obvious ways to raise or lower your insurance premium (the amount you pay each month) is to change your deductible.
A higher deductible will usually equate to lower premiums, while a low deductible will typically mean monthly payments that are a little lower. So what are these “deductibles,” and what do they mean for your coverage?
A deductible is, in simple terms, the amount you’re financially responsible for in the event of an accident or other claim. In some cases, you may pay this money out of pocket. In others, it may be deducted from the payment issued to you by your insurer. For example:
- A tree falls and hits your windshield; it needs to be replaced. You have a $1,000 deductible on your comprehensive coverage. It will cost less than this to replace the windshield. Therefore, you will pay out of pocket for the repair.
- You’re in a collision with another vehicle and total your car. You have a $1,000 deductible on your collision insurance. In most cases, this $1,000 will simply be deducted from the current value of your vehicle. You will receive the difference as payment from your insurance company.
In a moment, we’ll take a look at how to choose the deductible. First, though, make a note that your deductible isn’t always a deduction from your responsibility. Sometimes it’s a dollar amount you’ll have to pay upfront.
How Much Coverage Should I Choose?
There are several considerations you should take before you choose your deductible. They are as follows:
- How much can you afford out of pocket? What could you reasonably expect to be able to pay in the event of an accident? Consider your savings, your checking account, credit cards, and help from family and friends. If the deductible is more than you’re comfortable with, consider a lower one.
- How much is your car worth? It makes little sense to choose a deductible that doesn’t “match” your car. For instance, if you paid $2,000 for a used truck for driving around town, it’s probably going to cost you more to insure with lower deductibles than the truck is worth. If you have questions about the value of your vehicle, ask the DMV or your insurance agent.
- How much can you afford each month? If your low deductible is going to bring your insurance premiums up to an amount you can’t feasibly afford, it’s likely going to be wiser to choose a higher deductible. Remember that a lapse in insurance coverage is illegal and can lead to the suspension of your driving privileges.
You can find many car insurance calculators online that will help you decide how much coverage is optimal for you. Just plug in your choices for coverage limits and you’ll get an estimate of what your premiums will cost. From there, you can determine whether a lower or higher deductible is best for you.
When Will I Pay My Car Insurance Deductible?
If you’re involved in an accident and live in an at-fault state, the driver responsible for the accident is also expected to pay the deductible. Once you exchange insurance information with the other driver and a claim is filed, your car insurance company will let you know how to remit payment, if applicable.
If the accident is related to weather, vandalism, collision with an object or similar event, speak with your insurance company. Different costs associated with the event may be covered by different components of your insurance. This is specific to your coverage and may be either paid upfront or deducted from the amount your insurer pays.
If you’re involved in an accident, the first thing you should do is call law enforcement. Their report can help your insurance company determine who was at fault, which in turn will determine who is financially responsible.
Conclusion: Auto Insurance Deductible
There’s so much jargon related to auto insurance that it can muddy the waters when you’re shopping around for the best rates. Now that you know what a deductible in auto insurance is, you can easily find the coverages and limits that are comfortable for you, your budget, and your assets.