Understanding Auto Insurance Deductibles

An auto insurance deductible is the amount of money you pay out of pocket towards repairs or replacement after an accident before your insurance coverage kicks in. You typically have a choice between a low and high deductible. A low deductible means a higher insurance rate, whereas a high deductible means a lower insurance rate.

Choosing a deductible amount

Choosing a car insurance deductible amount is a balancing act between your monthly insurance costs and the amount you can afford to pay out of pocket in the event of an accident.

A 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. Most drivers choose a $500 auto insurance deductible, but policies with higher deductibles cost less.

• Cost difference: Compare the difference in price between plans with high and low deductibles. Remember that your total cost will vary based on whether or not you file a claim. It's best to run a few different calculations and compare your out-of-pocket expenses if you file no claims, one claim, or multiple claims.
• Likelihood of filing a claim: If you are more likely to file an auto insurance claim, you will likely save money with a low-deductible plan. Conversely, if you don't anticipate filing a claim, you will save money with a high-deductible plan. When considering this, ask yourself if you have a history of car accidents or engage in high-risk driving behaviours such as speeding or driving during rush hour.
• Value of your car: Depending on where you live, insurance companies will only pay up to the actual cash value of your vehicle if it is declared a total loss. Therefore, it is generally better to have a lower deductible if your car is not worth much. On the other hand, if your car is more expensive, a higher deductible may make more sense.
• Your savings: 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.
• 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 will still be covered, but you will pay more out of pocket. A low-deductible policy may be better if you are uncomfortable with taking on financial risk.

There is no "wrong" way to choose a deductible amount. It comes down to your preference and budget. Would you prefer paying a higher deductible in the event of a claim if it means lower insurance premiums? Or would you rather spend less money out of pocket after an accident, even if it means paying higher insurance rates over the length of your policy?

Comprehensive coverage

When you file a claim under comprehensive coverage, you will need to pay a deductible. The deductible is the amount you agree to pay out of pocket for repairs or replacement after an accident. For example, if you have a $400 comprehensive deductible and file a claim for $1,000 worth of damage, you will pay $400 out of pocket, and your insurance company will pay the remaining $600.

The comprehensive deductible amount you choose will impact your out-of-pocket costs for repairs and your car insurance rate. A lower deductible will result in higher insurance rates but lower out-of-pocket costs. On the other hand, a higher deductible will lead to lower insurance rates but higher out-of-pocket costs if you need to file a claim.

Comprehensive deductibles can range from $100 to $2,000 in most states, and you can choose the amount that best suits your needs and preferences. It's important to note that comprehensive coverage won't cover damage to your vehicle caused by a collision or hitting a pothole.

Collision coverage

When choosing collision coverage, you will need to select a deductible amount. The deductible is the amount you will have to pay out of pocket for repairs or replacement after an accident before your insurance coverage kicks in. For example, if the total cost of repairs is $1000 and your insurance company pays $800, you will be responsible for paying the remaining $200.

There are generally two types of deductibles: a flat rate or a percentage of the total amount of insurance on your policy. For collision coverage, deductibles can vary from a few hundred dollars to more than $1000, depending on the policy. In some cases, you may even be able to waive the deductible entirely.

When deciding on the amount of your deductible, it is important to consider the cost of your car and the potential cost of repairs. Choosing a higher deductible will lower your monthly premium, but it will also increase your out-of-pocket costs if you need to file a claim. On the other hand, a lower deductible will result in higher premium payments but lower out-of-pocket costs if an accident occurs.

Personal injury protection

PIP covers reasonable medical costs, including surgeries, x-rays, dental or eye treatments, medical procedures, prosthetic devices, and professional nursing. It also covers rehabilitation therapy, lost income resulting from the accident, and replacement of necessary services such as family care or household maintenance. In the unfortunate event of a fatality, PIP can help pay for funeral, burial, or cremation expenses and can help replace lost income for surviving dependents.

The amount of PIP coverage varies depending on the state and insurance provider. In Texas, for example, insurance companies are required to offer a minimum of $2,500 of PIP insurance, with the option to increase coverage up to $5,000 or $10,000. In some states, PIP coverage is mandatory, while in others, it is optional. It's important to review the specific requirements and options for your state when considering PIP coverage.

Uninsured motorist coverage

Underinsured motorist coverage is similar but applies when you're hit by a driver who doesn't have enough insurance to cover the damages or injuries they caused. This type of coverage includes underinsured motorist bodily injury (UIMBI) and underinsured motorist property damage (UIMPD). UIMBI covers medical bills for you and your passengers, while UIMPD covers damage to your vehicle.

While not all states mandate uninsured and underinsured motorist coverage, it is highly recommended for all drivers. In some states, such as Illinois and New Hampshire, both types of coverage are required. In other states, like Massachusetts and South Carolina, only uninsured motorist coverage is mandatory.

Uninsured and underinsured motorist coverage can provide valuable financial protection if you're in an accident with an uninsured or underinsured driver. Without this coverage, you could be left paying for medical bills or vehicle repairs out of your own pocket. It's important to review your insurance policy and understand the specific coverages and deductibles that apply in your state.

Frequently asked questions