One of your biggest questions about your first car insurance policy is probably how much a claim is going to cost you. The good news is, it will cost a lot less that going uninsured would. However, just because you have car insurance, that doesn’t mean you will pay nothing for your claim costs. One of those that many policyholders has to pay is the deductible cost. Here’s a closer look at what you can expect from this unique cost obligation.
If it is your first time buying car insurance, you might not be exactly certain about how all parts of your policy work. Policies can be complicated, which is why we’re here to help you out. When learning about car insurance deductibles, ask yourself at least the following questions.
1. What is a Deductible?
A deductible is essentially a deduction from the total cost of a claim that your car insurer will refuse, or rather, agree not to pay. Rather, they will shift this cost to you, and that can help them reduce their cost risk of insuring you.
In other words, you will agree to pay for the costs of your deductible so that your car insurer won’t have to. The deductible is an out-of-pocket cost, so you’ll need to plan to pay for it in an affordable way. That way, you will always be able to cover the deductible cost if it arises.
Let’s say that you have a collision with another vehicle, and you are responsible for paying the cost of your vehicle’s repairs. However, attached to your collision policy is a $500 deductible. Therefore, you will agree to pay that $500 out of the total cost of the claim.
If, for example, the collision causes $7,000 in damage, then you pay the $500 deductible, and the insurer will pay the remaining $6,500 in damage. The formula is $7,000 total - $500 deductible = $6,500 covered costs.
2. What parts of my policy contain deductibles?
Auto policy deductibles can vary considerably. In fact, many policies will contain several deductibles attached to the various types of protection you carry. Most often, you will find a deductible attached to the physical damage insurance on your policy. This usually includes:
- Comprehensive damage coverage
- Uninsured/underinsured motorist coverage
In some cases, you can choose different deductibles for each of these types of coverage. So, you might have a $500 deductible on your collision and comprehensive insurance. Then, you might have $1,000 deductibles on your uninsured/underinsured coverage. These regulations vary, so check with your insurer for more information.
However, other portions of your coverage often don’t have deductibles attached. Liability coverage, for example, usually doesn’t attach a deductible to claims. Some policies also offer deductible-free coverage for certain type of physical damage, such as glass damage.
3. Is a higher or lower deductible better?
When you set up your car insurance policy, you likely will be able to choose from several levels of deductible. For example, policies might offer deductible choices $500, $750, $1,000 and so on, to a certain point. Therefore, if you have a $500 deductible, then you agree to pay $500. So, by increasing your deductible, you agree to shoulder more of a cost burden.
On one hand, if you increase your deductible, you might be able to save money on your premium. As you take on more of a cost burden yourself, you reduce the insurer’s cost burden. Therefore, they might be able to charge you a lower price for your policy.
Still, don’t raise your deductible arbitrarily. By increasing deductibles, you agree to pay a higher price yourself. First, this means more out-of-pocket costs for you. Second, it also means that you might have more instances when your policy will not pay, and you’ll have to do so yourself.
4. Will I have to carry certain deductibles?
In some cases, you will have to carry deductibles of certain costs. Auto lenders might require their buyers to carry collision and comprehensive coverage, with certain deductibles attached, in order to qualify for car loans. Therefore, when you finance the car, see if you have such a requirement.
5. Will I have to pay a deductible if I total my car?
If you total your vehicle in a wreck, that means the car is now a total loss. Therefore, your insurer will provide you money for either the car’s replacement cost value, or for the car’s cash value at the time of the accident. This can help you put money towards the cost of a new car.
However, even if you total the car, your insurer might still subtract the deductible before they pay you. So, if you qualify to receive $10,000 for a totaled car, and you have a $500 deductible, then your insurer might only pay you $9,500 in compensation.
When your deductible will apply to your car insurance claims will vary from policy to policy. However, your agent can help you structure your deductible in ways that they will always remain affordable to you.