Auto Insurance Deductible Explained – How Does It Work?
After an accident, the last thing you want to worry about is how you’re going to pay for the damages. Whether it’s a fender bender or a more serious collision, car accidents are stressful enough without having to worry about money. That’s where auto insurance comes in. This insurance is designed to protect you financially in the event of an accident.
But what is an auto insurance deductible and how does it work?
An auto insurance deductible is the amount of money you pay out-of-pocket for repairs after an accident before your insurance company steps in to cover the remaining costs.
For example, if you have a $500 deductible and your car is damaged in an accident that costs $1,000 to repair, you will pay $500 and your insurer will pay the remaining $500.
Deductibles for auto insurance are one way for keeping premiums low – by making policyholders share in the cost of repairs, insurers can offer lower prices. Of course, this means that if you do have an accident, you will have to pay more out-of-pocket. That’s why it’s important to choose a deductible that you can afford to pay if necessary.
An auto insurance deductible ranges from $250 to $1,000, although some insurers will offer higher or lower depending on your financial situation.
Getting a deductible can seem like a great idea so you will be able to have a good insurance policy but at a good price as well. However, you’ll need to decide how much you’re willing to pay with your own money and this is not an easy decision as you can’t just rely on the fact that you are a good driver that never gets into accidents. Keep in mind that a higher deductible means lower premiums, but that is by no means a good fit for everyone.
What Is an Auto Insurance Deductible?
To further explain this, an auto insurance deductible is the amount of money you are required to pay out-of-pocket for damages and the rest will be paid by your insurance company.
Most people choose to set their deductibles at a level that they can afford to pay in the event of an accident, as this helps to keep their overall monthly premiums down. It is important to remember that the higher your deductible, the more risk you are taking on.
If you are involved in an accident and cannot afford to pay your deductible, your insurance company will not cover the damages and you will be responsible for paying for all repairs yourself.
How Do Auto Insurance Deductibles Work?
Let’s now take a better look at how exactly does auto insurance deductible work.
Deductibles are usually a set dollar amount, but some insurers offer variable deductibles that increase as you file more claims. Once you decide on the insurance best fit for your vehicle you can see the price differences based on the amount of deductible you are comfortable with.
Some insurers also offer disappearing deductibles, which means it will decrease over time as long as you don’t have any accidents.
While having a higher deductible will secure you lower payments, it also means a bigger cost if you ever do end up in the accident. Make sure that the car insurance deductible is the amount you can afford before selecting a policy.
Another important thing to note is that if you cause an accident but don’t damage your car, you won’t pay a deductible. In this scenario, your liability coverage would pay for the other driver’s injuries and property damage, which doesn’t carry a deductible. However, if your vehicle is damaged in the accident, and you decide to file a collision claim, then you would pay your collision deductible.
This is not the only case you will get away without paying your deductible and that’s why it is crucial to always read the terms and conditions of any agreement so you know what is on you to pay and what is not.
What Are the Different Types of Auto Insurance Deductibles?
In case you are currently on the hunt for good auto insurance you should first be aware that there are two types available: the comprehensive deductible and the collision deductible.
The comprehensive auto insurance deductible is the amount of money you have to pay out-of-pocket for damages to your car that are not caused by an accident, such as theft, fire, or weather damage.
The collision auto insurance deductible is the amount of money you have to pay for damages to your car that are caused by an accident only. By accident, it means that it covers for damage done to your car if you hit another vehicle or a stationary object.
Depending on your personal needs one or the other may suit you better. It is on you to decide how much you will likely be able to pay in case any of these scenarios come to life.
But be sure to think of your living situation and what scenario is more likely to happen so you will find out which suits you better.
What to Consider When Choosing an Auto Insurance Deductible
When you are in the process of choosing an auto insurance deductible, you’ll want to consider how much you can afford to pay up front if you need to make a claim. A higher deductible means you’ll have more to pay if something does happen, but it also means lower payments which can save you quite a bit of money.
However, don’t go too big on this amount you will allegedly be able to spend for repairs. It’s most important that you be realistic about it. If you can’t afford a high deductible, it’s not worth it just so you would lower your insurance payments.
On the other hand, if you’re a safe driver and don’t mind paying a little more from your pocket if something happens, a high deductible might be the way to go.
Don’t forget to factor in how much you drive and where you live when making your decision. If you live in a rural area with few cars on the road, your risk is lower than someone who lives in a dense urban area. The same goes for how much you drive – the more time you spend on the road, the greater your chances of being in an accident.
At the end of the day, it’s up to you to decide what level of risk you’re comfortable with. Choose an auto insurance deductible amount that makes sense for your budget and driving habits.
What Is the Average Auto Insurance Deductible?
Your auto insurance deductible is typically set at the time you purchase your policy and can range anywhere from $0 to $1,000 or more. This amount will greatly impact your premium costs so choose carefully. However, there are some other types like variable and disappearing deductibles we already talked about.
The average auto insurance deductible is around $500.
It’s important to remember that this deductible is not a “set it and forget it” number – if you have a claim that exceeds your coverage limits, you may be responsible for paying all of the damages yourself. That’s why it’s always a good idea to know what kind of coverage you have and to review your policy regularly to make sure it still meets your needs.
In the event of an accident or other covered incident, you will need to pay your deductible before your insurance company will begin to cover the remaining costs.
For example, let’s say you have a $500 deductible, and you are involved in an accident that causes $3,000 worth of damage to your car. You would be responsible for paying the first $500 of repairs yourself, and then your insurance company would cover the remaining $2,500.
When Should You Pay an Auto Insurance Deductible?
The size of your deductible is something you choose when you purchase auto insurance. With a higher deductible, it just means there is more risk for you but also the perk of a lower payment.
Ideally, you should never have to pay your deductible but you should never rely on that as well.
In case you do need to make a claim, it’s important to know when you’ll be responsible for paying the deductible. Here are a few situations when you may need to pay your auto insurance deductible:
- If you’re at fault in an accident
- If your car is damaged in a hit-and-run
- If your car is vandalized
- If your car is stolen
There may be some other cases where you will need to pay the deductible but it also depends on the policy you decided to get. Not all of them are the same so you will have more or less responsibility depending on your specific type.
When Should You Not Pay an Auto Insurance Deductible?
There are some situations where you will not be responsible for paying the deductible. For example, if your car is totaled in an accident, your insurance company will pay you the actual cash value of your car minus your deductible.
So, if you have a $1,000 deductible and your car is worth $5,000, you’ll get a check for $4,000.
However, if you have collision coverage and damage your car, you’ll have to pay your deductible before your insurance company will reimburse you for the repairs.
Other instances where you are not paying the deductible include:
- If there is an accident but another driver is at fault.
- Glass repairs as they are usually offered for free by insurance companies.
- If another driver files the claim against your liability insurance. This is due to the fact that liability coverage doesn’t deal with deductibles.
What Happens If You Can’t Pay Your Auto Insurance Deductible?
By now you got a good explanation of auto insurance deductible, but what happens if you can’t pay it?
If you are unable to pay your auto insurance deductible, there are a few things that could happen.
Your insurance company may cancel your policy if you become delinquent on your payments. If your policy is canceled, you will be responsible for the entire cost of any damages that occur. You may also be required to pay a penalty fee.
Additionally, you won’t be able to file a car insurance claim to have vehicle damage or medical bills paid for.
These are just some of the consequences, but there are many more that differ more or less depending on your policy. This is why it is crucial to set the deductible at a reasonable rate so you will be able to afford it whenever it is needed.
Final Thoughts
As you can see, there are a few things to take into consideration when it comes to auto insurance deductibles. It’s important to remember that the higher deductible you are willing to pay, the lower your payments will be. However, you need to make sure you can afford it because there is always the chance you will get into an accident.
There are a lot of factors that go into how much your premium will be, so it’s important to work with an experienced agent who can help you find the right coverage for your needs and budget. If you have any questions about auto insurance deductibles or anything else related to car insurance, we suggest you hire a good counselor.
