Demystifying Car Insurance Deductibles

car insurance deductibles

Car insurance provides financial security in case of an accident or damage to your vehicle. Though many people understand the basic concept of auto coverage, some finer details often get overlooked. If you want to explore the intricacies of car insurance deductibles, including how they affect your car insurance rates and how to choose the right deductible, keep reading!

What is a Car Insurance Deductible?

A car insurance deductible specifies the out-of-pocket cost for a covered repair before your insurance coverage kicks in. Deductibles are a specific dollar amount, like $100 and $500. There are two primary types of deductibles: low and high. A low deductible, meaning the amount of money you pay out of pocket is relatively low, will often lead to a higher insurance rate. This is because the insurance company is paying more for your car repairs or replacement. Alternatively, a high deductible, meaning that the amount of money you pay initially out-of-pocket is relatively high, will result in a lower insurance rate.

Collision insurance and comprehensive are the two most common auto policies with deductibles. Collision insurance kicks in when your vehicle is damaged in an accident with another car or object. Comprehensive insurance covers vehicle damage caused by sources like vandalism, fire, or weather. In some states, policies like uninsured motorists and property damage will also have deductibles, though this is less common. 

How Car Insurance Deductibles Work

No matter the type of car insurance, all auto deductibles work the same way. When an insured event occurs, the claims process begins. Following a covered event, immediately submit a claim to your insurer. They will request that you get the damage evaluated by an auto repair professional. After evaluation, you must pay your deductible before your insurer pays for the rest of the repair. This will come as a payout equal to the repair cost minus your deductible. Unlike health insurance, which often has an annual deductible, you are responsible for your deductible every time you file an auto claim. If the repair cost is lower than your deductible, your insurer will not cover any part of the repair. It may be best not to file a claim in these cases, as this may raise your insurance rates.

No Deductible Scenarios

There are several scenarios in which you may not have to pay your deductible. If you are at fault in an accident where your car is not damaged, you do not have to pay a deductible to cover the cost of the damage to the other vehicle. This is where your liability coverage will kick in. Additionally, if your car is damaged in an accident where you are not at fault, your insurance provider can seek reimbursement from the other individual’s insurer. 

Additionally, some insurers offer a “disappearing deductible,” which reduces your deductible after each claim-free period as a reward for safe driving. This can eventually lead to a $0 deductible for a collision or comprehensive claim. However, once you make a claim, your deductible will reset to the original amount.

Choosing a High vs. Low Deductible

As we mentioned, there are two main types of deductibles: high and low. You will often get to choose between the two when getting your insurance policies. Deductibles typically range from $100 to $2000. It is important to remember that higher deductibles will result in lower insurance rates and vice versa. Choosing the right deductible for you, your vehicle, and your financial situation is essential.

When choosing your deductible, keep in mind your budget and emergency fund. If you have a large emergency fund, having a high deductible to keep your yearly insurance rates low may be worth it. Additionally, a high deductible can save you money in the short run if you have a good driving record or live in an area with very little severe weather. Ultimately, there is no right or wrong answer when choosing a car insurance deductible. Choose the one that fits your needs and financial situation!

Need Some Help?

Need help choosing the right policy and deductible? Reach out to Masters Insurance today and protect your finances and your vehicle!

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