When choosing your car insurance coverage, you will come across the term "deductible" and probably notice that the size of your deductible can vary. A deductible applies to collision and comprehensive auto coverage, not to liability insurance. The amount you choose could make a big difference on the amount you pay for your insurance premiums. The higher your deductible, the lower your premiums. However, there are several factors to consider before choosing how much you should pay.
Before going into that, I will explain what a deductible really means.
A deductible is the amount of money that you must pay out of your own pocket to fix your vehicle before your insurance kicks in. That means that before making a claim, you have to pay the deductible. After you have made your initial payment, your insurance company will pay for the rest of the repairs up to your coverage limit. For example, let's say that you have a low deductible of $250, and you sustain damage that is worth $3,500. You would have to pay $250 to get your vehicle repaired, and after you pay that amount, your insurance pays the remaining $3,250. If the liability is uncertain, you can file a claim with your insurance company against the negligent driver's insurance policy. If your car insurance company recovers the money, they have to reimburse you for the deductible that you paid. However, if you are held liable, you will lose your deductible.
It is a highly personal decision to choose the deductible amount. However, each state has its own range of price which usually is $100 to $1,000. If you choose a high deductible amount, you will save money on your monthly (or yearly) car insurance premiums. On the flip side, if you are involved in an accident, you will have to pay that high deductible to get your vehicle repaired. To help you decide wisely, it is important to consider your financial situation, your risk factor and your premiums.
Always choose a deductible that you can afford to pay if you would be involved in an accident, because your insurance company will not start paying until you have paid the deductible. If you choose a high deductible of $1,000 and you only have $250 in your emergency savings, you wouldn't have enough money to pay for your vehicle repair.
Your risk factor will also determine the amount of your deductible. If you have been involved in accidents in the past, your insurance company may require you to get a higher deductible or they may be hesitant to insure you. If you have a spotless driving record, you may be wondering if you need a deductible at all. There are policies with no deductibles, but they are becoming quite rare. They are also significantly more expensive than policies with deductibles. A simple way to see what the best deal would be is to calculate the balance between the premium and the deductible.
If you don't drive at peak hours, and you are a very safe driver, then a high deductible could be right for you. Just make sure that you have the money available in case an accident does happen! If you don't have enough money available in case of emergency and you are a high risk driver, then a lower deductible with a higher premium may be a safer decision.
Unlike other types of insurance such as medical insurance, deductibles must be paid each time there is a claim, not just once a year. Keep this in mind if you live in a high risk area, if you are prone to have accidents, or if you have high risk drivers on your auto insurance policy. If you feel at risk, a lower deductible can be a better idea.
The type of vehicle you have can also play a big part in your decision making. If your vehicle is old and not worth much, it may not make sense to have a very high deductible. If you have an expensive vehicle that costs a lot to insure, then you might want to opt for a higher deductible to save money on your premiums.
To recap, you can lower your auto insurance premiums by raising your deductible. However, it may not be worth it if you end up paying more to fix your vehicle than what you would save from your premiums with a lower deductible.
It is very important to get different quotes from several car insurance companies to make sure that you're getting the best possible price for your car insurance policy. Comparing the best car insurance rates is only a click away. Use the box below to find the best auto insurance quotes in your area now!