How to Understand Car Insurance Deductibles

When insuring your car, you will have a lot of leeway to choose the benefits that are most personalized to you, even though you will have to carry at least a minimum amount of coverage as required by your state. You still can choose multiple perks within your plan, and among the terms that are within your ability to control are your damage deductibles. 

Deductibles are costs that you agree to pay for accident claims yourself, and therefore free your insurer from having to cover them. They are also very flexible, and if you work with your agent to choose deductible options that are the best fit for you, then you will likely save on the value of your policy. 

Let’s take a closer look at how deductibles work, and why they might equal policy savings as long as your structure them correctly. 

What is a deductible? 

An insurance deductible is a cost that you agree to pay yourself for a claim, rather than obligating your insurer to pay. Therefore, when you file a claim on a policy with a deductible, then your insurer will deduct this dollar amount from your final settlement. You are responsible for paying the balance of the deductible yourself. The deductible therefore shifts some of the cost risk onto the policyholder, as opposed to the insurer, and enables your insurer to better balance the risk of investing in you. 

Where are deductibles included in my auto policy? 

On auto insurance policies, most physical damage coverage (collision & comprehensive coverage) includes a deductible. As a result, if you file a claim for damage that you sustained in a wreck, or from another event like a vehicle fire, then your plan will agree to pay for the cost of your damage minus your deductible cost. 

So, suppose that you have a $1,000 damage deductible on your policy, and following a wreck, your insurer estimates that it will take $4,000 worth of repairs to fix your car. They will subtract the deductible from the total repair value ($4,000 – $1,000) and send you the $3,000 that they have an obligation to pay you under the terms of your policy. 

Generally, deductibles are not included as part of your liability insurance or un/underinsured motorist coverage. Some portions of physical damage coverage will also waive the deductible, but this will vary from policy to policy. 

How do I choose the right deductible? 

When you are in the process of signing up for your auto insurance, you will probably have the opportunity to choose a damage deductible that fits within your budget. Insurers frequently offer deductible choices of $500, $1,000, $2,500, $5,000 or other, similar intervals. You should choose a deductible that you can afford to pay on your own. After all, this is a cost burden that will be your responsibility following vehicle damage. 

It is true that choosing a higher deductible will help you save money on your auto insurance premium. The higher a deductible, the higher the share of your damage costs you agree to pay yourself. This frees insurers from having to pay a higher amount of money on your behalf. Therefore, they might not have to charge you more to make up for the extra cost risk they assume because you chose a low deductible. 

However, a deductible remains a cost that is your responsibility. Therefore, any claim amount that is below the value of the deductible will have no assistance from your insurer. If you choose a deductible that is too high, just to save money on your premium, then you will still face the prospect of facing an insurmountable recovery cost when you have an accident. 

For help understanding which portions of your policy include deductibles, and to learn how you should tailor them to be to your greatest advantage, then don’t hesitate to speak to one of our agents. We are committed to helping every client design auto insurance benefits that will always provide you with the highest level of assistance for any given claim.