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Car Insurance Deductibles: How Do They Work?

A car insurance deductible is the amount of money you must pay on a claim before your auto insurance company begins to payout or cover additional damages, repairs, expenses or medical bills beyond the deductible. Generally speaking, higher auto insurance deductibles come with cheaper annual premiums since companies assume policyholders will be less likely to file smaller claims given the out-of-pocket expense. For this reason, picking the best car insurance deductible is critical to calculating your rates.

Car Insurance Deductible

How Do Car Insurance Deductibles Work?

If your insured car suffers $2,000 worth of damage in a covered accident and you have a $500 deductible, the car insurance company will pay $1,500 to fix your vehicle and you must pay $500. The deductible applies each time a claim is made for damage or repairs to the car under the policy. When buying auto insurance coverage, most insurers will offer you a choice between a $250, $500, and $1000 deductible.

Choosing The Right Car Insurance Deductible

While liability car insurance coverage is mandatory, collision and comprehensive coverage are not. Collision coverage protects your vehicle when you are in a car accident, paying for repairs and damages to your own property; meanwhile, comprehensive coverage covers damage to your vehicle in instances other than an auto accident, such as natural disasters. Both optional insurance coverages have car insurance deductibles and the amount of the deductible has a big impact on how affordable your car insurance rates may be.

Before buying the best car insurance for your needs, get multiple car insurance quotes and compare the auto insurance deductible on each policy to see which company is offering the best deal and coverage.

What Is Collision Insurance Coverage?

Collision coverage insures against damage to a vehicle caused in an accident like a collision with another car or a stationary object. Although collision car insurance is not mandatory under state minimum insurance laws, it is usually required by banks or lenders when you buy a new car. The deductible on collision coverage is usually between $250 and $1500, but the most common deductible is $500.

What Is Comprehensive Car Insurance?

Comprehensive insurance covers damage to an insured vehicle caused by theft, vandalism, acts of nature and collisions with animals. Like collision coverage, comprehensive coverage is usually required by lenders who have a financial interest in a vehicle such as a car loan. The deductible options on comprehensive coverage are the same as those for collision coverage, with the average deductible being $500. In the case of theft, many comprehensive policies cover a rental car for up to 30 days.

Effect of Deductible on Car Insurance Rates

Since lower deductibles mean the car insurance company faces more risk of claims, payouts and reimbursements, the premiums for low deductible collision and comprehensive insurance coverage are higher. On the other hand, higher car insurance deductibles are priced with cheaper monthly premiums.

The catch is that the policyholder must have enough money to cover the amount of the deductible should the car be damaged. While a $1500 deductible gets you cheaper car insurance, some policyholders may not be able to pay $1500 out of pocket for repairs if their car was damaged or involved in an accident.

A Deductible Savings Account

The safest way to choose a high deductible is to put enough money in a savings account to cover the deductible if the car is damaged. By doing so, you will enjoy lower premiums and collect interest on your savings. The bank account means you will always have the money to cover repairs if your car is damaged. For those who cannot afford to bank the full amount of the deductible, opening a savings account and making regular deposits can help reduce the risk.

Get The Cheapest Car Insurance

Everyone wants to save money on car insurance, but before raising your deductible to save money with a cheaper policy, consumers should compare auto insurance companies to find the lowest rates on a policy with the deductible they need.