Understanding Auto Insurance Deductibles

Dec 11, 2022 | Personal Insurance

Policy premiums are what you pay to insurance companies. They are the ones providing the coverage on your policy along with all the features in it. They will bill you every cycle and change upon your evaluation with the company every time your renewal comes up. You need to understand auto insurance deductibles.

Meanwhile, auto insurance deductibles are an amount you may owe should you have an auto insurance claim. With every policy, there are different coverages and different deductible options. When it comes to deductibles, this is dependent on the policyholder and their budget. 

What Are Car Insurance Deductibles?

Other expenses like car repairs or replacements for parts after an accident are your car insurance deductibles. You agree to pay these within a certain amount. One example is If you had an accident and the total cost of the damage would be $1000. If you have a deductible of $300, then the insurance company would pay $700 as part of the claim. Then, you will shoulder the rest. 

Insurance deductibles are totally up to you as the policyholder. You discuss this with your agent before you sign the policy. Both of you can determine how much money you can set aside for this particular purpose. 

Types of Auto Insurance Deductibles

Auto insurance policies summarize different coverages catering to the policyholder’s interest. But while they differ, their sole purpose is to help cover expenses when you need them. Some coverages could have the deductible as part of it already. Some may also hold the option to add one when you need to do so. 

  1. Optional Collision Coverage

This pays for damages to your car from colliding with anything, and you are at fault.  It can be anything – a mailbox, a fence, or an establishment. This coverage does not include the usual wear and tear on your vehicle. Or other issues like those that are mechanical in nature but it will cover damages resulting from going through potholes. 

  1. Comprehensive Insurance 

It is such a beautiful word that covers a whole lot more. Comprehensive insurance protects you from theft and damages. These include those due to nature, like hail, falling branches, and fire and floods. 

There are so many scenarios in which deductibles do apply. But there are also times when we don’t need them. Minor damages are sometimes part of the coverage without deductibles, and some insurance companies offer zero-deductible comprehensive coverage. This means you don’t shell out anything when claims are filed, but your premiums are higher.

More Types of Auto Insurance Deductibles

  1. Uninsured or Underinsured Motorists 

You can file under this claim when you get into an accident with another motorist who doesn’t have enough or no insurance to pay for damages. Though unavailable in all states, some states may advise a not-expensive deductible. 

  1. Protection from Personal Injury or PIP

This coverage pays for your medical expenses. This would also include those in your vehicle when you get into an accident. Another good thing about this is that it can help cover expenses when you cannot work due to accidents. While not available in all states, a deductible may apply to your claim. There are a lot of options that the policyholder can choose from, which will create a significant impact on your premium.

No Auto Insurance Deductibles Required 

Most states require liability coverage covering injuries by the other party if you are at fault. This would also include damages to property when an accident happens. Suppose you purchase liability coverage as a policyholder. In that case, you are to choose the amount of your coverage which is only limited by the maximum amount that the insurer could give to cover the damages to the other vehicle or people involved. For this reason, there is no deductible here. 

In cases where you have roadside assistance as part of your coverage or rental car reimbursement, there is no deductible, but limits may apply for every claim. 

How much should my deductible be? 

The amount you pay for deductibles greatly depends on how much you have set aside on your budget for spending on your car insurance every month and the amount you are willing to shell out or could afford to shoulder should you become involved in an accident. Lower deductibles mean higher insurance premiums, meaning you need to determine your overall financial status first to determine how much you will pay. This is something that you are going to discuss in detail with your insurance company.

Factors to consider in choosing a deductible

There are many things to think about when deciding on the deductible amount on your car insurance. 

  1. Weighing between car insurance and deductibles

As your deductible increases, your monthly insurance payments or your premium decreases and vice versa. This means that if you are okay with shouldering repairs on your own when you file a claim, you can get insurance with a lower premium, but if not, you can take a lower to no deductible and increase the premium on your insurance. 

  1. How much can you afford to pay out of your own pocket?

In choosing your deductible, you must look at your financial status first and determine how much you can spend on damages if you get into an accident. Say, for example, you can spend $100, then you should not get a deductible that is higher than that amount. 

  1. What are your deductible requirements? 

You may need comprehensive collision coverage regarding vehicles leased or financed by a lender. If this is it, then you should choose deductibles for each.  Some lenders limit the maximum deductible you should carry, so you should check with your lender what the restrictions are, if any. 

Do I have to pay a deductible all the time? 

Not being required to pay a deductible doesn’t happen very often, but if it does come to that, here are some reasons why. 

  1. It is the other driver’s fault. 

It will not always be you who is at fault, and when the person who hits you and your vehicle are insured, you are not held responsible for paying a deductible against the claim you are filing through their insurance company. Deductibles apply only when a policyholder files a claim with their insurance company. 

  1. What is a disappearing deductible? 

There are insurance companies that offer such deductibles as an option. Other names that it may go by would be vanishing or diminishing deductible. This feature in the policy means that the longer you are in the policy without getting into an accident, the less you would have to pay for deductibles. 

For example, if you have met no accident in a couple of years, a certain amount will be taken off of your deductible per year. So if you need to file a claim, instead of using the original amount, you would then be using the lesser. Once claimed, there is usually a certain amount of time for you to take advantage of it again. You can clarify these with your insurance provider. 

What does it mean when you have a $1000 collision deductible? 

This means that if you have $1000 for your deductible, you will pay that from your own money once a claim has been approved under collision. If you get into an accident and the damages are worth $3000, then the $1000 would be yours to pay, and the insurance company would shoulder the rest. 

As a final note, when it comes to deductibles and their relationship to your insurance premium, it is best to look at your current financial situation and what you can afford. Discuss your questions and clarifications with your insurance agent, and before you make a choice, look at all the possible scenarios that would keep you safe and secure. Keep in mind as well that the lower your deductibles are, the higher the premium. The lower the premium, the higher the deductible. 

We hope you learned a lot from this article. Contact us at Advantage Insurance Solutions in Denver, CO, for your insurance needs!

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