Whenever you file an insurance claim for your car, you are required to pay a fixed amount of money out of your own pocket, which is known as a car insurance deductible. In some cases, this amount may be a certain percentage of the total insurance policy value. This deductible serves as your contribution towards the cost of repairing damages to your car, before your insurance company pays the remaining cost.
Whenever you make an insurance claim, a car insurance deductible is the amount of money that you have to pay out of your own pocket. Deductibles are usually a fixed amount, but in some cases, they represent a certain percentage of the total insurance policy amount.
What Happens When You Have a High Deductible?
When choosing an insurance plan, you have the option of selecting a lower or higher deductible. Opting for a lower deductible results in higher monthly insurance premiums, but it also means you'll pay less out of pocket in the event of a claim. On the other hand, choosing a higher deductible reduces the cost of your premium, but it also means that you'll have to pay more out of pocket if you file a claim. In essence, you need to decide whether you want to pay a higher insurance premium or pay more out of pocket in case of a claim, as suggested by Progressive.
The Most Relevant Factors When Choosing a Deductible
When choosing between a higher and a lower deductible, several factors need to be taken into account. The Balance highlights the following as the most important:
1. Can you afford to pay out-of-pocket in case of an accident?
If you opt for lower monthly payments and a higher deductible, you should be able to pay any eventual out-of-pocket expenses in case of an accident. If you don't have an emergency fund and an insurance claim would seriously affect your finances, it's better to go for higher monthly payments and a lower deductible.
2. What's the payback?
The deductible you choose also depends on how often you estimate needing to make an insurance claim. If you choose a higher premium and a lower deductible, you need to calculate how often you would have to make a claim for the lower deductible to make sense. On the other hand, if you choose a lower premium and a higher deductible, you will only save money if you avoid needing to make any insurance claims.
3. Do you have lots of accidents?
If you have frequent accidents, a lower deductible is recommended. It makes sense since you will pay less out of pocket each time you need to use your car insurance. However, if you have a clean driving record, lower premiums and higher deductibles are usually the right choice for you.
4. What is your adversity to risk?
The lower your deductible, the less financial risk you face in case of a claim. Estimating how often you will need your car insurance is somewhat of a gamble. Therefore, choosing the right balance between your regular insurance payments and your deductible also depends on your adversity to risk.
5. What's the price of your vehicle?
The more expensive a vehicle, the higher the cost of insurance. Therefore, high deductibles may make sense if you own an expensive vehicle, as you will save on premium costs. However, if you drive an inexpensive vehicle, high deductibles may not make sense, as you will be paying them in full in case of a claim, and they may cost you more than the actual car repair.
6. Can you separate deductibles?
Collision coverage insures your car against accidents, while comprehensive coverage insures it against damages that are unrelated to you, such as weather phenomena, vandalism, and other similar events. Some insurance companies offer safe drivers the option to have high deductibles for accidents and lower deductibles for comprehensive insurance. This means that if you are confident in your driving abilities but still want good coverage for random events, you can reduce costs by paying smaller premiums for collision coverage.
When Do You Have to Pay the Car Insurance Deductible?
If your vehicle is hit by another driver, in most cases, you will not have to pay the insurance deductible, and the repairs will be covered by their liability insurance, according to Understand Insurance. If your vehicle has collision coverage, you can use your own insurance to fix it without paying a deductible, and your insurance company will arrange for reimbursement with the other driver's insurer.
However, if the damage to your vehicle is more expensive than the other driver's policy coverage, and you use your own policy to cover the difference, you may be charged the deductible. In such a case, you can choose to sue the other driver and recover the money.
If you cause a collision, your liability coverage will pay for the damages, and you will pay the deductible to fix your own vehicle. Moreover, if the fault is shared between you and the other driver, you will likely have to pay a part of your deductible. If the accident is entirely your fault, there are not many ways to avoid paying the deductible other than negotiating lower repair costs with a mechanic, as mentioned in a 21st Century Insurance article.
What's the Takeaway Regarding Car Insurance Deductibles?
It's important to remember these key facts and details about car insurance deductibles:
– A deductible is the amount of money you have to pay out of your own pocket before the insurer covers the rest of the cost.
– You have the option to choose the amount of your deductible, which will depend on the type of coverage you have (collision and comprehensive).
– The most important factor that determines whether you will have to pay a deductible in the event of an accident is who is at fault. If you are not at fault, you will not be required to pay a deductible.
– If you are unable to pay for your deductible, you may not be able to use your car after it has been repaired following an accident. This is because you will owe the mechanic working on your vehicle rather than the insurance company. The mechanic can legally keep your car until the owed amount is paid or an alternative payment plan is agreed upon.
– It's important to compare deductibles for different insurance rates before choosing a plan. This will help you determine the best ratio based on your particular situation and driving record.
– Selecting the right car insurance deductible can greatly benefit your finances in the event of an at-fault accident. However, it's important to carefully consider all options and make a decision based on your personal preferences before committing to an insurance plan.
