Choosing a Car Insurance Deductible: Everything You Need to Know

Choosing a car insurance deductible can be confusing for those who are new to auto insurance terms. Basically, the deductible on a car insurance policy is the amount of money that you agree to pay out of your own pocket for car accident damage, before the insurance company gives you any money towards the damage. Before making car insurance claims, you must first pay the deductible amount, and then the insurance company pays whatever they are obligated to pay above that.

Each state has different deductible rates, but the normal rate amount can range from $100 to $1500. So if you sustain damage that equals $2000, and your deductible is $250, your insurance company will pay $1750 for the damage, subsequent to you paying the $250.

Car insurance deductibles are determined by a number of factors, as explained below.

Your Choice
Car insurance deductibles are most commonly determined by what you want. If you decide you want a $500 deductible, tell the insurance company and they will usually give you what you ask for. When deciding how much of a deductible you want, consider how much money you would be able to pay if you are involved in an accident. You don't want to have a $2000 deductible if you only have $1000 in emergency money saved, for example. Choose a deductible that you'll be able to pay if necessary, because if you are involved in an accident, you won't get any help from your insurance company until you do.

Your Risk Factor
Some car insurance companies require you to have a deductible over a certain amount if they consider you to be a high risk driver. If you have a history of being involved in accidents, an insurance company will be hesitant to insure you, since you'll likely end up costing them money. Requiring a high deductible means that the insurance company will be responsible for far less. In some cases, the deductible may exceed the costs of damages from an accident, so the insurance provider won't have to chip in at all to help you pay the bills.

Your Premiums
You might wonder why anyone who is not considered a high risk driver would choose to have a deductible at all. No deductible policies are indeed available; however, as might be expected, there is a balance. Insurance premiums (the amount you pay for your policy every month) are significantly higher when you don't have a deductible. You can use the balance between premium and deductible to find out what the best deal is for you. If you're a very aware, defensive driver and have taken driving classes, your ability to stay out of accidents may make the risk of a high deductible worthwhile (but make sure you have the money available, just in case). If you have any doubts about your ability to stay out of trouble, or simply don't have a large sum of money available in case of emergency, a higher premium and lower deductible is probably a safer choice.

One important thing to know about car insurance deductibles is that the deductible has to be paid each and every time there is a claim, not just once annually. This is different from the deductible applied to other types of insurance, like major medical insurance. You should be aware that the deductible you set is payable on every single claim you file. This is another reason why a lower deductible is a good idea for drivers who may live in a high risk area, or have high risk drivers on their policy.

Do I lose my deductible if I have an accident?
If you get involved in an accident, your vehicle will be repaired at a recommended repair center. You pay the deductible to the repair shop when you have checked your vehicle over and are happy with the condition of repairs. It will then be passed to a subrogation department within your insurance company, who will attempt to recover part or all of your deductible, subject to liability. If you are deemed liable, then yes, you will probably lose your deductible.

When do I need to pay a deductible?
Most auto insurance policies only ask for a deductible if you are buying a comprehensive policy or collision coverage. People who just buy the state minimum will not usually have to pay a deductible, because they are only insured against liability, and there is no deductible necessary. If you have a comprehensive policy which covers theft, self damage, fire, and other claims, you will usually have to select a deductable.

Budgeting Your Auto Insurance Deductible

One way to handle a car insurance deductible is to build it into your budget. For example, you could select a $500 deductible on either a liability or comprehensive policy, and keep that $500 in a savings account earmarked for the event of a claim. This safeguards your liability completely in the event of a crash, as your savings plus the insurer's contribution will cover the total.

Budgeting Your Auto Insurance Premiums
On the other hand, if you have little savings and a limited monthly income, budgeting premiums can help you avoid up-front costs, and, if you drive safely, you have a good chance of avoiding the deductible kicking in. Drivers who want to pursue this option can ask reps for a breakdown of how higher deductibles will lower the monthly premium cost.

Using History as an Indicator
Another way to approach the auto insurance deductible is to use your driving record. If you are a driver who has not been involved in a claim situation for the last 10 years, you may want to pay less, and let the deductible ride. However, if you are paying a premium on behalf of a teenage driver, a very low deductible can be great idea.

Practicality on Deductibles
That there's a certain threshold for deductibles above which the driver may be paying both ways. In other words, avoid making the deductible so high that a claim would not reach the deductible amount. If you pay a premium monthly for a policy with a sky-high deductible, you may end up paying claims out of pocket when they do occur. Keep this in mind when doing your auto insurance deductible calculations. It's also a good idea to look at the dollar amount saved over an annual period by raising or lowering a deductible. Then, make an informed decision about how much you could save by taking on a little more risk.

Car insurance deductibles can be influenced by a few factors, but are mainly left up to your personal decision. Make a well informed decision about your insurance policy by considering both the benefits and dangers of having a high deductible.