Choosing the right car insurance deductible can save you real money. Know your options before you sign a policy.
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A car insurance deductible is one of the most important elements of auto insurance coverage. So, knowing and understanding the four different types of deductibles is crucial. If you’re buying a car or switching insurance providers, take a moment to consider what deductibles are best for you.
How do car insurance deductibles work?
A car insurance deductible is the amount of money the policyholder pays out of pocket toward an insured loss. It is deducted from the total claim amount. For instance, say the car insurance deductible is $500. If the car is damaged and the insurer determines the claim is worth $5,000, the insurance company would pay out $4,500 for the claim.
Sound familiar? Car insurance deductibles are very like health insurance or home insurance deductibles.
Car insurance deductibles are paid each time you file a claim. but, deductibles typically only apply to damage to your car if you are responsible. Deductibles do not apply for liability claims if you are found at fault for damaging someone else’s property or injuring another person. So, if a person is injured in a car wreck where you were driving and they file a claim against you, you would not pay a deductible.
What are the different types of deductibles?
Deductibles usually are paid on claims that fall under four types of coverage in the car insurance policy.
1. Collision
If you damage your vehicle in an accident where you are at fault, this damage is covered under your collision insurance. But, you will need to pay a deductible on the claim.
2. Comprehensive
If your vehicle is damaged by something out of your control, your comprehensive insurance pay for repairs. Examples include hitting a deer, backing into a lamppost or storm damage. This type of insurance also covers theft, vandalism and fire. These claims will incur a deductible.
3. Uninsured or underinsured motorists
If someone without insurance or enough insurance coverage is found at fault for a car accident involving you, you must file a claim. You must do this under your insurance policy. A claim must be filed under your insurance. In that event, a deductible apply under your coverage for underinsured/uninsured motorists depending on where you live.
4. Personal injury protection (PIP) coverage
In most states, the driver who caused a car accident is considered “at fault.” Their insurance needs to pay for medical bills. But twelve states* run under “no-fault” laws. This means you need to file bodily injury claims with your own insurance company through Personal Injury Protection (PIP). This type of insurance covers your medical expenses resulting from an accident, even if you are not at fault. Some no-fault states will allow you to opt out of PIP coverage.
PIP coverage will also come with a deductible.
*The 12 no-fault states include Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah.
What is a good car insurance deductible?
Car insurance deductibles range anywhere from $100 to $2,000, with many options in between. The average car insurance deductible is $500. Determining a good car insurance deductible depends on your individual financial situation and driving history.
How do you choose a car insurance deductible?
When choosing a car insurance deductible, you’ll need to take into account your financial situation. Think about how much you can afford to pay for your monthly premiums. Consider how much you can pay upfront if an accident happens. Speaking, the higher your premiums are, the lower your deductible is and vice versa.
You’ll want to decide how much you can afford to pay and when. For instance, if you have the money readily available, you pay higher premiums and choose a lower deductible. That means if you do file a claim, you’ll pay less out of pocket for repairs. On the other hand, if money is tight, you may opt for lower premiums to pay upfront. You can choose a higher deductible on the policy. If going this route, it’s important to be prepared to pay more out of pocket if filing a claim.
Other factors that affect the overall cost of your car insurance include whether you have a good credit score. Your age can also impact the cost. Additionally, where you live and your driving history are important factors.
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