Why Should you Care About Your Car Insurance Deductible?

When you buy car insurance, you make many decisions including the type of coverage and the deductible for each coverage. The deductible is an important piece of the puzzle as it determines your premium as well as how much you must pay out of pocket if you file a claim.

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The Definition of the Deductible

The car insurance deductible is your financial responsibility if you file a claim. For example, if you have a $5,000 claim after an accident and you have a $1,000 deductible, you must pay your $1,000 before the insurance will cover the rest of the claim.

Car insurance deductibles work a little different from other deductibles, such as health insurance, though. You pay the deductible each time you file a claim. With health insurance, once you meet your deductible, the insurance picks up the rest for the remainder of the year.

What Coverages Have a Deductible?

Typically, your collision and comprehensive insurance have deductibles. The deductibles are separate too. You may have a $500 collision deductible and a $300 comprehensive deductible, for example. Each policy is different as is each insurance company. Make sure you shop around to find the company that offers the perfect balance between great insurance and manageable deductibles.

How Deductibles Affect Your Insurance Premium

You don’t have a lot of control over the amount of your insurance premium, but you can change it slightly by changing your deductible.

When an insurance agent gives you a quote for insurance, it will be for a specific deductible. For example, let’s say an agent gives you a quote for full coverage with a $500 deductible for both comprehensive and collision insurance. You decide that the premium offered is rather high and you want to lower it. If you ask about increasing the deductible to $1,000, you will likely see a lower premium.

Insurance companies provide lower premiums with higher deductibles because their risk of paying out on a claim decreases with higher deductibles. For example, if you have a $1,000 deductible and you get in a fender bender that causes $700 in damage, the insurance company doesn’t have to pay a dime for the claim because the first $1,000 in damages is your responsibility.

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What Deductible Should you Choose?

You want to give careful thought to the deductible you choose. While it’s exciting to get a lower premium, you don’t want an unaffordable deductible. Remember, we are talking about an accident in the future. You don’t know when it will happen or if it will happen. You also don’t know how much the damages will cost. You want a deductible that you can comfortably afford without damaging your financial situation. Remember, you may have to pay the deductible more than once if you have more than one claim, so don’t make it one that is set too high that it will put a financial strain on you.

If you don’t have an emergency savings account set up, you may want to opt for the higher premium and lower deductible. While you will have to pay more out of your own pocket if you experience an accident, you won’t put yourself under financial strain with a large deductible. Once you have an emergency savings account set up, you can take the higher deductible and lower premium.

Your car insurance deductible is just as important as the coverage you choose for your car. Make sure you choose a deductible you can afford on insurance that you know is right for you. Shop around with several insurance companies to find the policy that is the best for you.

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