Understanding Auto Insurance Deductibles

Sep 21, 2021 | Personal Insurance

Policy premiums are what you pay to insurance companies since they are the ones providing the coverage on your policy along with all the features outlined in it. It is billed to you every cycle and changes upon your evaluation with the company every time your renewal comes up. 

On the other side of the coin, a deductible is an amount that you may owe should you have an auto insurance claim that is covered. With every policy, there are different coverages and different deductible options. When it comes to deductibles, this is totally dependent on the policyholder and their budget. 

What Is A Car Insurance Deductible?

Out-of-pocket expenses like car repairs or replacements for parts after an accident are your car insurance deductibles that you agree to pay within a certain amount. To put it into perspective, say for example 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 while you shoulder the rest. 

Insurance deductibles are totally up to you as the policyholder. This is something that you discuss with your agent before the policy is signed and finalized. Both of you can determine how much money you can set aside for this particular purpose. 

Types of Insurance Deductibles

Auto insurance policies are a summary of different coverages catering to the policy holder’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 and some may hold the option to add one when you feel the 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 actual establishment. This type of 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 that may include those that are caused by nature like hail, falling branches, and things like fire and flood. 

There are so many scenarios in which deductibles do apply but there are also times when they won’t really be needed. Small damages are sometimes covered without deductibles and some insurance companies offer zero-deductible comprehensive coverage. This simply means that you don’t shell out anything when claims are filed but your premiums are actually higher. 

  1. Uninsured or Underinsured Motorist 

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

  1. Protection from Personal Injury or PIP

This coverage pays for your medical expenses and it would include those people who are in your vehicle when you get into an accident. Another good thing about this is that it can help in covering the 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 Deductibles Required 

Most states do require liability coverage that covers injuries by the other party if you are the one at fault. This would also include damages to property when an accident happens. If you are going to purchase liability coverage, as a policyholder 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 that you pay for deductibles greatly depends on how much you have set aside on your budget for spending on your car insurance on a monthly basis and the amount that you are willing to shell out or could afford to shoulder should you become involved in an accident. Lower deductibles mean higher insurance premiums which means that in finding out how much you are going to pay, you need to determine your overall financial status first. This is something that you are going to discuss in detail with your insurance company. 

Factors to consider in choosing a deductible

There are a lot of things to think about when you are 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 then 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 actually afford to pay out of your own pocket?

In choosing your deductible, you have to take a look at your financial status first and find out 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? 

When it comes to vehicles that are leased or financed by a lender, chances are, you may need to have comprehensive and collision coverage for the vehicle. If this is it, then you should choose deductibles for each.  There are lenders who put limits to the maximum deductible that you should be carrying so you should check with your lender what the restrictions are if there are 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 of the 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 is insured, you are not held responsible for paying a deductible against the claim that 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 reduces the amount that you would have to pay when it comes to 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 normally 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 simply means that if you have $1000 for your deductible, you are going to 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 rest would be shouldered by the insurance company. 

As a final note, when it comes to deductibles and their relationship to your insurance premium, it is best to take a 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, take a 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.