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Choosing the best car insurance deductible isn’t easy. However, selecting a deductible is one of the most important things to consider when comparing coverage. A high-deductible car insurance policy brings different financial consequences than a policy with a low deductible. Read on to learn more about how car insurance deductibles work and how you can decide which amount is right for you. What is a Car Insurance Deductible?Let’s cover the basics of what a car insurance deductible is and how it works. If you file a car insurance claim after an incident, the deductible is the amount you pay out of pocket before your insurance carrier starts paying for repairs. You will have to pay the deductible each time you file a claim. For example, if you have a $3,000 repair and a $1,000 car insurance deductible, you would be responsible for paying $1,000. After paying the deductible, the insurance company would pay the remaining $2,000. However, if the repair costs less than the deductible, you’ll pay the entire bill. Not all types of insurance coverage have a deductible attached to them. In general, deductibles apply to collision, comprehensive, uninsured/underinsured motorist, and personal injury protection. How Does a Deductible Work?You get to choose your deductible when you buy your policy. Policies with lower deductibles have higher premiums but lower out-of-pocket costs if you file a claim. And policies with higher deductibles have lower premiums but higher out-of-pocket costs if you file a claim. When you file a claim with the insurance company, you pay the deductible. The carrier covers costs that exceed the deductible amount. Average Cost of a Car Insurance DeductibleAuto insurance deductibles can range anywhere from a few hundred dollars to $2,500. However, the most popular option is $500. No matter what amount you choose, it’s important that you can afford to pay it if you need to file a claim. 6 Steps to Choosing a DeductibleWhen selecting a car insurance deductible, follow these six steps to find out which amount is best for you. 1. Choose a High or Low DeductibleThere is a fairly straightforward relationship between your insurance deductible and the rate you pay for your policy. Plans with lower deductibles usually have higher monthly premiums and vice versa. But if you choose a plan with a higher deductible to get a lower rate, you’ll pay more out of pocket if you file a claim.
2. Calculate the Cost DifferenceWhen comparing auto insurance policies, looking at the difference in price between plans with high and low deductibles is a good place to start. But your total cost will vary based on whether you file a claim. So, it’s a good idea to run a few different calculations and compare your out-of-pocket expenses if you file no claims, one claim, or two claims. In the hypothetical scenario below, the driver would save $1,116 per year if they had a high-deductible policy and didn’t file any claims. But if the driver filed two claims that year, a low-deductible plan would save them $384 in out-of-pocket costs.
3. Are You Likely to File a Claim?In general, drivers who are more likely to file an auto insurance claim will have lower total costs with a low-deductible car insurance plan. Conversely, drivers who don’t file a claim will typically save with a higher deductible plan. However, when you opt for a plan with a higher deductible, you’re betting that you won’t have an accident. When considering the likelihood of filing a claim, ask yourself if you have a history of car accidents or engage in high-risk driving behaviors such as speeding or rush-hour driving.
4. Determine the Value of Your CarDepending on where you live, most insurance companies will only pay up to the actual cash value of your vehicle if the insurer declares it a total loss. So, it’s generally better to have a lower deductible if your car’s not worth much. For example, let’s say your vehicle’s worth $1,500 and you have a $1,000 deductible on your insurance policy. If your car is totaled, the insurer will only pay $500 after you cover the deductible. On the flip side, if your car’s worth $10,000 and you have a $1,000 deductible, the insurance company will pay $9,000. So, having a higher deductible makes more sense. You will need to calculate how much your car is worth. Then compare its value to your insurance policy costs. And remember, you don’t have to choose the same deductible for every type of coverage you have. An insurance agent may be able to help you mix and match deductible amounts based on your car’s value and the risks you face.
5. Evaluate Your Cash SavingsIf you do get into a car accident, you’ll have to pay your deductible before the insurance company starts chipping in for repairs. If you don’t have savings or an emergency fund to cover a high deductible, it may be better to choose a low-deductible policy. The higher monthly bills for insurance premiums may be a better way to protect your finances if you have an accident.
6. What’s Your Tolerance for Risk?Choosing a high-deductible plan is a gamble that you won’t have a car accident. If you do have an accident with a high-deductible policy, you’re still covered. But you’ll pay more out of pocket after the accident than if you had a low-deductible policy.
A High Deductible Policy is Good for Those:
A Low Deductible Policy Is Better for Those:
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Is it better to have a $500 deductible or $1000?A $1,000 deductible is better than a $500 deductible if you can afford the increased out-of-pocket cost in the event of an accident, because a higher deductible means you'll pay lower premiums. Choosing an insurance deductible depends on the size of your emergency fund and how much you can afford for monthly premiums.
What should my comprehensive deductible be?Typically, insurance agents recommend that your comprehensive deductible be between $100 and $500. Comprehensive claims tend to be filed for less damage than collisions, so having a lower deductible is often logical.
What is the standard deductible for collision and comprehensive?Both collision and comprehensive insurance generally have deductibles. A claim on collision or comprehensive coverage will be reduced by the deductible amount. Common deductibles are $250, $500, $1,000 and higher.
Should my comprehensive and collision deductible be the same?You can choose different deductible amounts for comprehensive and collision coverage. So, if you want lower out-of-pocket costs for a collision claim, you can choose a lower collision deductible than your comprehensive deductible.
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What should my deductible be for comprehensive and collision
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