Wednesday, June 15, 2022

What’s A Deductible On Car Insurance

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Is Collision Insurance Required

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There are currently no states in the U.S. that require drivers to maintain collision coverage. But if you lease a car or financed it with a loan, your lender will probably require the coverage because it helps minimize their risk if youre in a crash.

If you need to file a collision claim, the insurer typically pays the lender first and then pays you if theres any money left.

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Fault Matters When It Comes To Paying Your Deductible After An Accident

In most cases, you do not have to pay your deductible if another insured driver hits you. But you may have to pay it if fault is shared, and youll have to pay it to repair your own car if you have an at-fault accident. Youll also have to pay if your vehicle is damaged by something other than an accident or if youre injured by an accident in a no-fault state .

$500 Or $1000 Auto Insurance Deductible

Choosing an auto insurance deductible can result in severe financial implications if not done right. Deductibles are indeed a source of confusion and frustration for many people, especially considering the variety of options available. Its not easy to decide whether to go for a high premium or high deductible with car insurance.

The most common auto insurance question asked is if one should opt for an auto insurance deductible of 500 or 1000?

Understanding the low and high-deductible plans and monthly premiums can certainly help you make the right decision. First, however, you must weigh the various factors involved, such as your budget and other related circumstances.

Lets look at all the factors.

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What Is An Insurance Deductible

Insurance deductibles have been part of insurance contracts for years. When you sign up for a plan, you agree to pay a certain amount before the provider pays. It’s the amount of money that you pay when you make a claim. Often, it is stated as a dollar amount.

It could also be listed as a percent of the costs. This is more common for earthquake, windstorm, hail damage, or on higher risks assets.

You’ll have to come up with your part of the bill before a claim is paid. Once you pay it, the insurance pays the rest of the claim. They’ll pay up to the policy limits and send the money to you or the people that are owed.

How Deductibles Affect Car Insurance Premiums

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6% lower than $1,000 deductible

Note: Rates are for a six-month collision coverage policy, per

As you can see, increasing the deductible lowers the premium. But notice how little you would be saving by jumping from a $1,000 to $2,000 deductiblejust 6%. The extra $5 each month in your pocket is almost certainly not worth paying an extra $1,000 out of pocket after an accident.

On the other hand, picking a $1,000 deductible over $500 would save you $40 each month, according to these sample numbers. Over the course of the six-month premium, you would save $240 with the higher deductible . Thats about half of the extra $500 you would have pay out of pocket with the higher deductible after an accident, so the $1,000 deductible policy may be a better value. This is especially true if you are a safe driver with very few claims and/or tend to be a person who manages and saves money well. The longer you can go without filing a claim, the better the value of the higher deductible policy.

Moral of the storymake sure youre considering value in addition to cost.

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Can You Mix And Match Deductibles

If youre a good driver, you might be able to offset costs by having a high deductible for collision and low deductible for comprehensive. This ensures a high line of coverage for unexpected incidents and acts of God under your comprehensive coverage. Plus, comprehensive is usually a cheaper coverage policy.

You would offset the raised comprehensive premium cost by holding a higher deductible for collision insurance. Collision policies cover those costs if your vehicle hits a car or other car. If you dont get in a lot of accidents, you can take the risk with a higher deductible.

Nevertheless, to keep it simple, you may want to hold the same deductible for all types of coverage and cars.

What Is An Auto Insurance Deductible

A car insurance deductible is the amount of money you agree to pay out of your own pocket for car repairs or replacement after an accident. If you are involved in an accident causing $5,000 of damage to your vehicle, and you have a $500 deductible, the insurance company should pay $4,500 of the claim while you are responsible for $500.

Your insurance deductible amount is something you will determine with your insurance agent or carrier before finalizing your auto insurance policy. However, you should have the option to change your deductible at any time.

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Car Insurance Deductible Explained

To begin, lets cover the basics of what a car insurance deductible is.

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. Each time you file a claim, you have to pay the deductible amount.

For example, if you have a $3,000 repair and a $1,000 car insurance deductible, you would be responsible for $1,000 of the cost, and the insurance company would pay the remaining balance. If the repair costs less than the deductible amount, youll pay the entire bill.

Auto insurance deductible amounts can run anywhere from a few hundred dollars to $2,000, and the most popular option is a $500 deductible.

Youll have a car insurance deductible for either collision or comprehensive insurance coverage. You could also have deductibles for uninsured/underinsured motorist coverage and personal injury coverage.

Does It Make More Sense To Pay A Higher Deductible Or A Higher Premium On My Car Insurance

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The decision to pay a higher deductible or a higher premium is based on an individuals personal and financial situation. Premiums and deductibles go hand in hand. If you pay a higher deductible, you will pay a lower premium for your policy. However, if you choose to pay a lower deductible, the amount of your premium will be higher. Depending on your financial situation, it may be more beneficial to pay a lower premium and a higher deductible to keep your monthly, semi-annual, or annual payments lower. It is important to keep in mind that if you choose a higher deductible, you will need to have the ability to come up with the full amount should you need to make a claim.

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And How Your Deductible Affects Your Insurance Premium

When you buy car insurance, youll have to make several choices about your insurer and optional coverages. Youll also have to choose your insurance deductible, which can be more challenging than it sounds. Should you try to save money by picking a higher deductible or feel more secure by going with a lower one?

To choose the right deductible for you, youll need to consider your driving history, your emergency fund, and the costs of different deductibles, along with several other factors. Heres what you need to know about your options.

How To Select The Amount Of Your Deductible

Setting up an insurance policy requires you to consider several aspects of your financial status and personal driving habits. Both your premium and deductible correlate with one another, and as you increase the deductible, the premium decreases, and vice-versa. The amount you select for your deductible is a matter of personal preference, but the majority of drivers opt for the $500 to $1000 range for the sake of affordability.

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How Much You Can Afford To Increase Your Deductible

Is it better to have a $500 deductible or $1,000? Consider your own financial situation. If you have a nest egg tucked away with a few thousand dollars in it for emergencies, perhaps the higher deductible wont be an issue.

But if paying $1,000 out of pocket every time you make a claim would be a hardship for you, then it doesnt make sense to increase your deductible just to save a few dollars on your premium. Your deductible should always be an amount that you would be able to comfortably pay in the event that you need to make a claim.

When Do You Pay A Car Insurance Deductible

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You pay your deductible any time you file a claim under a coverage that carries a deductible, assuming the damage is covered and costs more than your deductible amount. If your claim is approved, your deductible will typically be applied when your insurance company issues your payout. You generally don’t have to write a check or make a payment to your insurer. They simply subtract your deductible amount from your claim’s approved payout. Suppose you have a claim approved for $5,000, and your deductible is $250. In that case, your insurance company will issue you a check for $4,750.

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Car Insurance Deductibles For Different Types Of Coverage

Car insurance deductibles work the same way for all coverage types, and you will get to choose your deductible amount for each. For example, you could choose a $500 deductible for comprehensive insurance, which tends to have lower premiums, but $1,000 for collision, which usually costs more. Many people also choose a separate deductible for windshield repair or replacement, which can have deductible options as low as $0.

Not all types of car insurance coverage apply a deductible. Liability insurance, which is required by law in almost every U.S. state, never uses a deductible. Liability insurance covers damages you cause to another person or their property in an accident.

Collision and comprehensive insurance are the most common coverage types that use deductibles. Collision insurance covers your car from accidents, no matter who is at fault. Comprehensive insurance covers damage from events outside of your control, like fires, floods, falling objects, and vandalism.

If you have coverage for personal injury protection or uninsured/underinsured motorists, these may also carry deductibles. PIP helps cover medical bills for you and other passengers and is required by some states. Uninsured motorist coverage protects you in the event you are hit by a driver who doesnt have insurance, or whose coverage limits cant cover the full amount of damage caused.

What Is The Difference Between A Deductible And A Premium

A premium is the amount of money that you would pay your insurance company in order to keep your policy active. Unlike a deductible, your premium is generally paid on a monthly, annual,or semi-annual basis.

Your deductible and your premium go hand-in-hand if one is higher, than the other will be lower as a result. There are pros and cons to both options, most of which will be discussed in this blog.

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How To Avoid Paying A Car Insurance Deductible

The best way to avoid paying a car insurance deductible is to avoid accidents, theft, or damage. Practice defensive driving, follow the rules of the road, obey the speed limit, and avoid driving in bad weather. Keep vehicles garaged in a safe location, and consider installing anti-theft devices.

People can also choose a policy with no deductible, albeit at a higher cost. Or they can sign up for a vanishing or disappearing deductible with insurers who offer it. This will reduce the amount of the deductible by a set amount during each time period the driver is free of accidents. Many insurers do set a minimum deductible, but people can reduce their potential out-of-pocket costs substantially over time.

When You File A Comprehensive Claim

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Comprehensive car insurance covers your vehicle if youre involved in an incident that does not include another driver. Examples of comprehensive claims you may make include theft, break-ins, fires or damage from falling trees. If you have coverage from a comprehensive insurance company and need to file a claim, you will pay your comprehensive coverage deductible.

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How To Avoid Paying Car Insurance Deductibles

If youre at-fault for a collision, theres not much you can do to get out of your deductible, or even to reduce the cost. You could ask the mechanic to bill the insurance company, minus the cost of your deductible, and set up a payment plan for the balance. But mechanics can legally keep your car until the debt is repaid. Or, you could ask the mechanic to bill your insurance company and waive the deductible, as a condition of getting your business. Since repair bills can be high, the mechanic may waive a $250 or $500 deductible in order to get the job. But its not likely. Its also illegal for the mechanic to overcharge your insurance company to compensate for waiving your deductible.

Another reason youre unlikely to avoid paying your deductible is that most car insurance companies simply subtract the cost from your claim. If your mechanic bills $3,000 in repairs and you have a $500 deductible, your insurer will write a check for $2,500 to cover it. Some companies will pay the mechanic directly, and others will write you a check to pay for the repairs yourself. Either way, theyll subtract your deductible before processing the claim.

This is why its important to set aside the money for your car insurance deductible before something happens, especially if you go with a higher one. Put the cash in an interest-earning account. That way youll have the money handy if you need it, and you can earn a little extra in the meantime.

What Are Liability Limits And How Do They Work

Your car insurance liability coverage limits, also referred to as limit of liability, are the most your insurance will pay to another party if you are legally responsible for an accident. Choosing a higher limit provides you more protection if an accident occurs.

Coverage limits may vary by coverage type and state. Contact your local independent agent or Travelers representative to learn about the coverages and liability limit that is right for you.

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What A Deductible Is

A deductible is the amount of money you pays out of pocket for the cost of damages before the insurance company pays. Think of it as the part of a loss you have chosen to self-insure.

Heres an example: You chose a $500 deductible when you purchased your auto policy. This means that you have agreed to absorb the first $500 in expenses as a result of each loss occurrence you suffer.

Lets look at two scenarios. Please keep in mind these scenarios are based on general information. Your claim results may differ depending on your unique situation, such as policy language, deductible amounts, policy limits, and coverage invoked due to the type of loss.

  • SCENARIO 1: Suppose you suffer a covered loss with total damage to your covered auto totaling $1,000. After discussing and settling the claim with your claims representative, you take your car to the garage. When the car is ready to pick up, the garage presents you with a bill for $1,000. You will pay the garage $500 directly. Your insurance company will pay the remaining balance of $500 to the garage.
  • SCENARIO 2: In this scenario, suppose you suffer a covered loss with total damage to your covered auto totaling $500. Since you have chosen a $500 deductible, you will be responsible for the expenses. You should not typically expect to receive any payment from your insurance company in this situation.

Whats The Cost Of Various Deductible Options

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According to McBride, there’s a rule of thumb: When considering deductibles, review any diminishing returns. If the cost of a policy with a $2,500 deductible isn’t much lower than a policy with a $1,000 deductible, the savings may not justify the potential challenge of having to come up with an extra $1,500 after an accident.

You may be able to choose different deductibles for different types of coverage depending on how you assess your own risk or cost concerns. People often choose a lower deductible for comprehensive than collision insurance, McBride said, as comprehensive coverage is generally cheaper than collision.

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Confused About How A Car Insurance Deductible Works

When shopping for car insurance, youll likely come across the word deductible and might wonder how it affects you and your insurance costs and when youll actually need to use it.

A car insurance deductible is the amount of money youre responsible for paying after you file an approved insurance claim. Your insurance company covers the rest, up to your coverage limit.

Lets take a look at how a car insurance deductible works, when you need to pay it , and factors to consider when deciding whether to choose a lower or higher deductible.

How Much Is My Car Insurance Deductible

Depending on your insurer, you can typically choose a rate from $250, $500, $1,000, or $2,000.

If they ask, the choice is yours, your car insurance deductible is a financial decision. The higher the deductible, the lower your premium, but you want to be sure you can pay the higher deductible if you need to make a claim.

Your financial situation will change over the years, so at renewal adjust your deductible amount to fitl. Make it a habit to shop for car insurance quotes to ensure youre getting good value from one of the best car insurance companies.

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