What is a car insurance deductible?

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Joel Ohman
Founder, CFP®https://res.cloudinary.com/quotellc/image/upload/insurance-site-images/ciccom-live/41b5e36b-joel-ohman.jpg

UPDATED: Mar 5, 2020

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What is an auto insurance deductible? Car insurance is one of those things that we often complain about buying, yet it is necessary. We are always trying to figure out ways to get our car insurance cheaper. Your car insurance deductible is one way to do this. As with any insurance, car insurance is meant to protect you from having to pay a lot of money out of pocket. One of the most important determining factors of monthly car insurance premiums is the deductible you choose. The deductible amount will directly affect your overall premium. Why not see how much you could save with a FREE car insurance comparison now!

What is a Car Insurance Deductible?

A deductible is the amount of money that you agree to pay before the insurance company will pay their part. The general rule is this: the higher the deductible, the lower your monthly premium. This is because less money is coming from the insurance company and more money is coming from you. Also, insurance companies know that if you can’t come up with your deductible, they won’t have to pay anything so higher deductibles result in lower premiums.

Deductibles can be anywhere from $250 to $3,000. The important thing about your car insurance deductible is that you choose an amount you will be able to pay at a moment’s notice. No one can anticipate an accident or when one will happen but as soon as one does, your deductible will be due. If you don’t have the money, your insurance company won’t pay a dime and you could end up paying for all the damages out of pocket or lose you vehicle altogether.

Experts say that your deductible amount should be about 10% of the worth of your car with the lowest amount being $250. However, if you have the money set aside, you can make your deductible whatever you want it to be. Putting your deductible amount in a savings account that earns interest ensures that you are ready to pay if an accident should happen and allows you to make a little bit of money as well.

How an Auto Insurance Deductible Works

A deducible works like this– If you get into an accident that causes $3000 worth of damage to your car and your deductible is $500, you pay $500 then the insurance company will pay the remaining $2500. Changing your deductible can affect the amount of your premium anywhere from 10% to 20%. You can change your deductible amount any time so starting with a low deductible until you save up money and then changing the amount is possible.

You will need to choose a deductible whether you have comprehensive coverage or simply collision. Comprehensive coverage covers any damage caused to your vehicle from another vehicle, a natural disaster, or vandalism. Comprehensive coverage is important if your car is new or if you still owe money on your vehicle. Collision coverage covers only accidents with other vehicles.

Whether you get comprehensive coverage or collision coverage, your deductible should still be based on your income level, the value of your car, and how much you want to pay for your monthly premium. Many websites have deductible calculators that ask you questions. Your answers help determine the amount that is recommended for your deductible. Using a deductible calculator is one way to make sure you are covered should you have an accident.

What is the Purpose of a Deductible?

A car insurance deductible serves many purposes. First of all, it keeps overall insurance rates affordable. Since the customer pays a portion of the claim, insurance companies can keep prices affordable by making deductibles mandatory. Secondly, deductibles cause drivers to be more caution. Knowing that you will have to pay for the first part of damages should make you more careful and diligent in driving.

Lastly, deductibles discourage individuals from claiming everything, even very small claims. For example, if $300 damage is done to your vehicle and your deductible is $500, there is no claim to file with the insurance company. By not filing many small claims, insurance companies are able to use there money to pay our more substantial claims which is a win-win for both the insurance company and the customer.

Every car insurance company has different premiums and these premiums are affected by deductibles. If you aren’t sure what car insurance company or deductible is right for you, you can compare companies and prices online. Comparing online saves you time and gives you all the information you need to make your car insurance choice. Use the car insurance tracker available above at no charge and get started with a FREE car insurance comparison today!

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