Auto Insurance Deductibles: How do they Work?

April 11, 2018
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Believe it or not, you have choices in the amount of insurance you purchase and how high you are willing to go when choosing your deductibles.

But before you can do this, how do deductibles work and what is best for you?

Your deductible is how much you must pay before the insurance company starts paying for a covered loss. The higher your deductible, the more "skin in the game" you have before the company must start paying on your claim. So, the higher your deductible, the less your insurance costs but beware! Unlike other types of insurance, your deductible is charged for each occurrence! For example, let's say that you have a $500 collision deductible and are involved in three at-fault accidents. You are responsible to pay the $500 for each accident before the insurance company starts paying for each loss. You could be out of pocket for up to $1500 in this case. So, that's the trade-off. It's great to choose high deductibles but you could end up paying a lot out of your pocket to save a relatively small amount of money.

With auto insurance, you will likely need to choose a deductible for your comprehensive coverage and one for your collision coverage. Comprehensive coverage is for any physical damage to your vehicle other than collision such as fire, theft, vandalism, or falling objects. Collision coverage is when you collide with something. The only exception to this that comes to mind is if you "collide" with an animal. This is considered a comprehensive claim.

Your comprehensive and collision deductibles don't have to be the same! Many of our clients will have a low deductible such as $250 on their comprehensive coverage but have a much higher deductible such as $500 or $1000 on their collision coverage. Why? One reason is that the price differences in the cost of comprehensive deductibles are minor while the price differences in the cost of collision deductibles can be fairly significant.

So, how do you choose the right deductible for you?

First, you need to ask the question "how much money could I afford to lose without really impacting my financial situation or lifestyle". If you are barely getting by and living from paycheck to paycheck, a lower deductible would be the wiser choice. Yes, the cost of the insurance policy would be higher but wouldn't it be easier to make slightly higher monthly payments on the policy as opposed to having to come up with a large sum of money to get your car back that you simply don't have?

Next, your agent (hopefully that's us) can tell you exactly how much you save for each deductible higher than a basic amount. That's when you weigh the differences. If I choose the higher deductible, my insurance will cost only X amount and I will save X amount of money but if I have an at-fault accident, I will have to come up with the higher amount of the deductible. In other words, is it worth having a deductible which is $250, $500, or $1000 more if I only save a few dollars or is the savings significant enough to warrant the higher deductibles?

Please contact our office for a review of your auto insurance to see what we can do for you!