What is a Deductible in Auto Insurance?

And how it works.

A deductible is an expense that can be subtracted from adjusted gross income while completing a tax form. However, deductibles are also used in auto insurance. Read on below to find out what role they play and how they are determined.

What is a Deductible in Auto Insurance?

A coverage deductible in car insurance policies is the amount you pay in a claim or accident. In simple terms, it’s paid when you file a claim from your own pocket. Deductibles for coverage include such as collision, comprehensive, uninsured motorist property damage etc.

Deductibles are a risk insured between you and the policyholder. In case of an accident, this amount is deducted automatically. The deductible amount is usually small. However, the bigger the deductibles, the lower your insurance premiums would be.

Deductibles can be a small dollar amount or a total percentage of the insurance policy. It depends on your insurer and their policies. Some policies offer different coverages which can be found on the front page of your auto insurance policy.

How do they work?

Let’s assume you have collision coverage and a $300 deductible. You are in a car accident that causes $3000 worth of damage to your car. If you choose to file a claim with your insurance company, they will pay the remaining $2700 after you have paid the $300 deductible. That’s when you pay the deductible for car insurance.

So essentially, for each loss that has coverage in your insurance policy, you will have to pay a deductible. The only exception being Florida where hurricane deductibles are applied per season and not per storm.

How to avoid paying car insurance deductible?

There is not much you can do to avoid paying a deductible. If you want to file a claim, you will have to pay the deductible. However, in a situation where you might not have the money at the time of the claim, you can choose to wait to file a claim. If the damage has not rendered your car useless and you can still drive, you might want to file the claim when you have the deductible amount arranged.

Another option is to check your policy. As we have stressed before, every policy is different. It is advisable to check your policy before deciding to either make a claim or not. Some policies might not demand payment up front, giving you time to arrange the deductible amount while filing a claim immediately.

If you want to know how to get deductible waived completely, you might need to talk to your mechanic as mechanics can sometimes choose to waive your deductibles completely if the damage is not a lot.

Now the question arises.

When should you pay the deductible?

If you have filed a claim and it has been approved, you will have to pay the deductible amount with no exceptions.

However, there are a few certain scenarios where you might not have to pay a deductible i.e:

  1. If an insured driver hits you.
  2. A claim is filed against your liability coverage by someone else.
  3. You chose for $0 deductible as per state’s policy.
  4. You have free glass repair claims.

A question that is frequently asked is, do i pay a deductible if i hit a car?

The answer is no. If you hit a car and are found to be at fault, you would not have to pay deductibles for your insurance to cover the other driver’s damage as liability insurance does not have a deductible. You are only required to pay a deductible if you are at fault and require repairs on your own car.

How can you choose a deductible amount?

Deciding a deductible amount is entirely up to you. It all depends on the level of risk you are willing to take on and no insurance company can decide that. Which is why deciding the deductible amount is usually up to the insured. However, insurance companies will provide you with a range and then you can decide which one is better suited for you and your family.

There are several factors that can help you in making this decision. For example, you should decide how much you are willing to pay. It is important to pick an amount that you are able to pay, regardless of any unforeseen circumstances.

Deductible amounts also affect your overall policy plan. If you choose a low deductible, you will have to pay higher premiums. And if you choose a high deductible amount, your premiums will be lower. It is essential to speak to an insurance agent that knows your financial situation so they can guide you better about what your insurance premiums and deductibles should look like.

Here are a few questions that can help you decide the amount you need to pick for you deductibles:

  • What does your emergency fund look like?

In case of any accidents, your emergency fund is most likely to be used to pay off any deductibles. Which is why it is important to make sure your emergency fund is in good shape.

  • What is the value of your vehicle?

If your vehicle is not expensive, high deductibles amounts do not make sense. The more expensive a vehicle is, the more it takes to be insured. If you decide on a high deductible, it might end up with you in loss if the cost to repair the damages are not as high. Thus, the value of your vehicle is an important factor to consider when deciding a deductible amount.

  • What are various deductibles like?

It is important to speak to your insurance agent so you can decide how much deductibles are going to cost you in terms of the insurance plans available in your state.

  • Is there a risk?

Pretty much every driver has a risk no matter how good of a driver you are. Maybe you usually have to drive during peak traffic hours, resulting in a higher risk of collision. Or maybe there’s a very busy freeway on your way to work. No matter what it is, you will always be at a risk. The only thing to determine is the degree of risk which then can be used in deciding how high your deductibles need to be.

  • Should you go for a vanishing deductible?

Vanishing deductibles are gaining popularity these days. It’s essentially for people who might cripple with the financial burden of paying a deductible. Any deductible. In situations like these, people opt for a vanishing deductible which helps take a little burden off. You will have to pay a little extra in insurance premium to get it but it would help you in times of accidents.

  • Should you get different deductibles for different coverages?

It is possible to opt for different deductible amounts for different coverages. For example, with a cheaper coverage like comprehensive, people tend to opt for lower deductibles. Whereas, collision is a bit pricier and is more likely to have higher deductibles.

So now, you will have a basic outline in your mind about what amount for deductibles would be good for you. Please note that whatever amount you choose, it’s not higher than what you are able to pay. It is important to be prepared for accidents or any loss or damage you might concur. However, it is also important to not overestimate and be unable to pay when the time comes.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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