Car insurance can be tricky. Knowing which coverages to carry is important but it can be confusing. While having the proper coverages is key, having the right deductible is also necessary. Here is everything you ever wanted to know about car insurance deductibles:
What is a deductible?
A deductible is the dollar amount that you agree to pay out of your pocket before your car insurance starts paying the bills after you have filed a claim. After your deductible is paid your insurer should cover the rest of the bills related to your claim, up to the limits of your policy coverage.
Deductibles vary by the type of coverage you are talking about, and some coverages have a zero deductible. As an example, liability coverages do not have a deductible while coverages such as personal injury protection (PIP) and uninsured motorist may have a deductible depending on the state you live in and the insurer you are covered by. On the other hand, coverages that handle physical damage such as comprehensive and collision will always have a deductible. It is possible to set your deductible at zero but it will bump your premium up significantly.
How a Deductible Works
When a physical damage policy is first written you will the option of several deductible amounts. These amounts can vary from zero to a whopping $2500 if you really want to keep your premium payment low. The most common and popular deductible amounts are $250, $500 or $1,000.
What all of this means is that if you are in an accident and file a claim for $4000 in damages and you have a deductible of $250 you will need to pay the repair shop that first $250 and your insurer will cut a check for $3750 to the repair shop to cover the rest of the bill.
The deductible takes on a different meaning if your vehicle is totaled or deemed a total loss. In the above example, if your car is only worth $4000 your insurer will total the car and your insurance company will pay out the claim instead of repairing the vehicle. In this case you would receive a check for $3750 which is the $4000 value of our vehicle minus your $250 deductible.
Your deductible will also factor into when you will make a claim. If you are in a small accident and the damage amounts to $150 there is no need to make a claim as the damage amount is less then your deductible. This is not a big deal if you are carrying a small deductible but if you are carrying a deductible of $1000 that can amount to a lot of damage that will not be fixed unless you write the check.
In the majority of cases, the deductible is due regardless of whether you are at fault or not in the accident. One exception is for a windshield claim, this only applies in some states and with some insurers so be sure to check with your insurance company. If you are not at fault and do not want to pay your deductible its possible to go after the at fault party’s insurer by making a claim with them.
What’s the Proper Deductible Amount?
As you shift more of the risk to your car insurer the higher your premium is going to climb. The secret to deductibles is finding the right number for you, one that you are comfortable paying should an accident happen, while keeping your premium in a comfortable range for your monthly budget.
Obviously, a lower deductible means that your out of pocket expenses are lower but your premium will be higher and a higher deductible will lower your premium but means you are writing a bigger check when an accident happens.
Most experts recommend that insurance should be used for large ticket items, not the small stuff. Covering the cost of minor accidents on your own will help keep your premiums in line. If you make a claim for every little item, your insurer will be raising your rates and eventually excessive claims can result in non-renewal.
The best deductible is one that you can afford but that is high enough that small dents and scratches falls under that limit. While there is no one size fits all when it comes to deductibles, in many cases a $1000 deductible is a great choice but be sure that you have the money set aside in the event that an accident happens. If you cannot save that amount, choose a lower deductible that works within your budget.
When shopping around for insurance be sure to request quotes in a variety of deductible levels to see what affect a higher or lower deductible will have on your premium costs. Consider how much you can afford for a premium and a deductible amount that you can easily afford in order to choose the best combination for your situation.
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