New insurance clients, usually first-time drivers, may find themselves asking this question before they choose a policy: how do car insurance deductibles work? Deductibles in the car insurance world operate in much the same way as health insurance deductibles.
The amount you choose affects how much you pay out-of-pocket when you use your insurance. It also affects your insurance premium. Here are a few factors to consider about this important component of your policy.
Choose the Amount
You choose a car insurance deductible amount, typically between $250 and $2,000, with $500 being the most common. The lower amount you choose, the lower out-of-pocket you have to pay in the event of an accident. The higher you choose, the lower your premium.
There isn’t a “right” way and a “wrong” way to choose a deductible for your car insurance. There is only the way that works best for your situation. Before you decide, consider the advantages and disadvantages of each, as well as your budget.
High Deductibles vs. Low Deductibles
Choosing a car insurance deductible over $500 can dramatically decrease the amount you pay in a monthly premium. That’s good news if you’re trying to lower your monthly expenses as much as possible, but it’s bad news if you’re not putting the extra money into an emergency fund.
Paying for a lower deductible ($500 or even $250) will result in paying more for your insurance policy each month. It’s a good option to have when you need it, though. That’s because you won’t have to dip too far into savings to cover any expenses in the event of a claim.
Only you know what you’re capable of, so take this opportunity to do a lifestyle check. Are you disciplined enough to handle the extra money? If the answer is yes, go with the higher deductible.
Deductibles for At-Fault vs. No-Fault
Something else to consider about your insurance deductible is that you may not end up paying if the accident isn’t your fault. Or, if you do pay, it’s likely you’ll be reimbursed once the claim is settled with the at-fault’s insurance company.
The reciprocal is true if the accident is your fault. You could also experience an increase in insurance premiums at the next renewal period. Much will depend on the laws in your state, the legal outcome of the case, and whether you’re eligible for a collision deductible waiver.
The best course of action is to price the deductible into your budget. Think of it as a sunk cost that you may or may not get back. That way, you’ll be able to address repairs immediately, and you won’t “feel” the effect of paying the deductible as much.
So How Do Car Insurance Deductibles Work?
Car insurance deductibles serve a dual purpose. They help you, and they help the insurance company.
They help you, the insured, by not requiring a large sum of money to address costly damage to your car. And, they help your insurance company, the insurer, fund repairs to handle unexpected losses, in conjunction with monthly premiums.
What insurance deductibles and rates work best for your needs? Why not get a complimentary quote from Guided Solutions and find out?