A car insurance deductible is the amount you agree to pay out of pocket for a claim before your policy pays the remainder.
Keep reading to learn more about car insurance deductibles, including:
How a car insurance deductible works
Some forms of car insurance require you to pay a set amount out of pocket before the policy covers the rest of the claim.
For example, say you have full-coverage car insurance and you get into a crash. The damage is covered under your collision insurance, and the repairs come out to $7,000. If you have a $500 deductible, you pay $500, then your car insurance company pays the remaining $6,500.
When do you pay a deductible for car insurance?
Not all types of car insurance require you to pay a deductible. The two main types of auto insurance that have a deductible are:
Collision insurance: protects you if you are in an accident with another vehicle, or if you hit a stationary object such as a tree or fence.
Comprehensive insurance: covers damage due to reasons other than collision, including theft, vandalism and fire.
An uninsured/underinsured motorist insurance claim may have a deductible, depending on where you live. Uninsured motorist coverage deductibles tend to be regulated by your state instead of you choosing the amount.
Auto liability insurance covers damages and injuries you cause to other people or their property. It does not carry a deductible.
Do I pay a deductible if I'm not at fault?
If you are in a collision that is not your fault, you usually won't pay a deductible. This is because you'd be filing a claim against the at-fault driver's car insurance. However, the process of deciding who is at fault may take some time. During this process, your car may be sitting in the repair shop while you wait for your payout.
If you need to speed things up, file a claim with your insurer for collision coverage. You will need to pay your deductible in this instance, but if it's later found that you're not at fault for the accident, you can get a refund. There are a couple of other possibilities that may occur:
- Your insurer may decide to pursue action against the other driver's provider to recoup their costs. If they are able to recover the payout, your car insurance company will reimburse your deductible.
- If you are not able to recoup your deductible from your provider, you can take the other driver to small claims court for the deductible amount. Keep in mind, however, that the deductible amount may not worth the time.
Car insurance deductible vs. premium
Deductibles and premiums are two types of payments you make to your car insurance company for coverage. However, they serve different purposes:
Deductible: what you must pay in order for the remainder of the repair or replacement cost of a claim to be completed.
Premium: payment made over the course of a year for your car insurance coverage. This allows you to file claims for covered damages when they occur.
How high should my deductible be?
The higher your car insurance deductible, the lower your premium will be. Since your deductible affects your out-of-pocket costs, it's important to choose an amount that works for your budget.
Consider your savings account. If you have enough money to cover a high deductible in the event of a claim, you should go that route. This helps keep your annual premium low and may potentially save you a lot of money in the long run, especially if you don't have to file a claim.
If the actual cash value of your car isn't particularly high, consider going with a low deductible. This is because the value of your car could be around what you'd have to pay out of pocket in the event of a claim, making a high deductible cost prohibitive.
You can typically choose from a range of deductible amounts. There are even some car insurance policies with no deductible, but they're so expensive that they're often not worth it.
A $500 deductible is the most common, and is a good choice if budget is an issue or you have a low-value car. Our own research shows that there isn't a significant effect on your premium once you go past a $750 deductible, so consider keeping your deductible amount between $500 and $1,000.
It should be noted that if you finance or lease your car, you may not have a choice in the deductible on your car insurance policy. Some finance or lease agreements require you to have a low deductible to be sure that you can afford it in the event of a claim.
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