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  • Writer's picturejoseph retcho

How Does Auto Insurance Deductible Work?

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When it comes to auto insurance, one of the most important factors to consider is the deductible. Because your deductible affects both your monthly premium and the amount you'll pay for damages after filing a claim, it's critical that you make an informed decision.

So, what exactly is a deductible and how does it function? We will be discussing deductibles strictly for your car and not the medical portion of the deductible. Here are some things to think about when evaluating car insurance options to see what will work best for you.

What Is a Deductible on Auto Insurance?

An auto insurance deductible is the fixed dollar amount that you, as the policyholder, are responsible for paying toward the financial loss caused by a covered car accident. If your damages exceed your deductible, the auto insurance company will pay the difference up to the amount of your coverage. You choose your deductible and coverage limits, and you must pay up to the deductible amount before your car insurance company will cover the rest. Assume you purchase an auto insurance policy with a $1,000 deductible. If you are in an accident and the estimated damages are $2,000, you must pay $1,000 of a covered loss before auto insurance kicks in.

Here are examples of deductibles on car insurance:

  • Collision: This coverage pays for damage to your vehicle if it collides with another vehicle or object, is hit by another vehicle, or rolls over.

  • Comprehensive: This coverage helps pay for damages to your vehicle that are not caused by a collision. Theft, vandalism, glass-only damage, hitting a deer or other animal, and storm damage are all examples.

After you've paid your applicable deductible, your car insurance will cover the cost of the vehicle damage up to the policy limits.

How Does a Car Insurance Deductible Work?

When you have car insurance, your deductible is paid in full for each accident. For example, if you have three separate accidents during a given policy period and have a $500 deductible, you will pay a $500 deductible for each accident. Your car insurance company typically only covers the cost of damages that exceed the deductible amount in the case of a covered loss.

To demonstrate how your claim payment is calculated, suppose your deductible is $500 and the damages to your car total $450. You would pay the full $450. But if the damages to your car total $1,000, you’d pay your $500 deductible, and the auto insurance company would cover the remaining $500.

When Must You Pay A Deductible?

A deductible is only paid when there are covered damages to your vehicle, not when there are damages to another person's vehicle. That said, it can be difficult to understand every situation in which you’ll be required to pay a deductible. Here are a few examples to help you understand, but check with your auto insurance agent to confirm your specific coverages.

  • Another driver hits your car. If another driver is determined to be at fault for the accident, typically, their car insurance company will be responsible for paying for your repairs if you file a claim with the other company. If you file a claim with your car insurance company, you will owe your deductible, but your insurer will most likely seek reimbursement from the other driver's car insurance company. However, if a driver hits your vehicle and both you and the other driver are determined to be at fault, then you may be responsible for paying at least a portion of your deductible if you file a claim with your own car insurance company.

  • You collided with another driver's vehicle. If you collide with another vehicle and damage your own, your car insurance company will usually pay for the damage to your car, but you will be responsible for paying the deductible.

  • Something other than a collision caused damage to your car. If your car is damaged in a storm, fire, flood, or if you hit an animal, your auto insurance company will typically cover the damages and depending on your policy, you will most likely be required to pay your deductible.

  • Your windshield was broken. Generally, comprehensive coverage covers glass damage. Your auto insurance company would cover the cost of repairing or replacing your windshield in this case. You may be required to pay a deductible depending on your car insurance policy. Again, confirm with your car insurance agent what your coverage will cover.

  • A hit-and-run driver caused damage to your vehicle. If you have collision or uninsured/underinsured motorist coverage and someone hits your car and flees the scene, you will most likely be liable for your deductible. This type of claim is worth contacting your auto insurance agent for advice on your coverage and what you may owe.

  • Your car has been totaled. If your auto insurance company determines that your car is a total loss (e.g., the cost of the damages exceeds the value of the vehicle), it will usually pay for the fair market value of your car prior to the accident, less your deductible.

What Effect Does a Deductible Have on Your Car Insurance Premium?

Because your deductible affects your car insurance premium, you'll need to choose one based on your budget and possibly a few other factors. In general, the higher the deductible you select, the lower your premium will be. In contrast, the lower the deductible you select, the higher the premium you will pay.

For example, if your current policy has a $500 deductible and you decide to raise it when it comes up for renewal, your monthly premium will almost certainly decrease (assuming all other factors remain constant).

Here are a few more things to think about when deciding on a car insurance deductible:

  • How much of a deductible could you afford to pay? If you are in an accident, you may be required to pay your entire deductible, so make sure it is an amount you can afford. Consider starting an emergency fund to save money in case of an accident that necessitates paying your deductible. Also, some auto insurance companies have minimum deductible requirements, so keep this in mind when discussing your policy details with your auto insurance agent so you know what to expect if your vehicle is involved in an accident.

  • What is the value of your car? The value of your vehicle may influence which deductible is appropriate for you. In general, the more expensive your vehicle, the more expensive it is to insure. If you choose a high deductible, you can save even more money.

Several factors influence the cost of your car insurance policy, but your deductible has an impact on your premiums as well as how much you'll pay out of pocket for accident-related car damage. Consider your deductible options before choosing a policy. Hopefully, you will never have to pay a deductible, but it is critical that you choose a policy with a deductible that you can afford.

Your auto insurance agent can best assist you with deductible concerns.

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