Understanding Auto Insurance Deductibles: Choosing The Right Coverage

When buying car insurance, you'll need to choose your insurance deductible, which is the amount you'll pay out of pocket when you make a claim before your insurer covers the rest. The most common deductible is $500, but deductibles can range from $100 to over $2,000. When choosing your deductible, consider how much you can pay without causing financial stress. Also, weigh your vehicle's value, your emergency fund, and the costs of coverage. A higher deductible means a lower insurance rate, but you'll pay more out of pocket if you need to make a claim.

Collision insurance deductible

Collision insurance is a type of financial protection in the event of a collision with another vehicle or an object on the road. It is not mandatory in the US, but it may be required by a lender if your vehicle is financed. Collision insurance generally covers any collision or crash caused by the driver on public roads, collisions with other objects as well as cars, accidents caused by another driver without adequate insurance coverage, and damage caused by a rollover.

A collision insurance deductible is the amount you must pay out of pocket when filing a collision insurance claim. It is the amount you contribute towards the claim before your insurance company covers the remaining costs. For example, if you have a deductible of $500 and the claim is for $1,700, you pay the $500 deductible and the insurance company covers the remaining $1,200. Collision insurance deductibles typically range from $100 to $1,000.

When choosing a collision insurance deductible, you need to consider your ability to pay for repairs out of pocket in the event of an accident, as well as the impact of the deductible on your insurance premium. A higher deductible will result in a lower insurance premium, but you will have to pay more out of pocket if an accident occurs. Conversely, a lower deductible will increase your premium, but you will have fewer costs to pay yourself in the event of a collision.

It is important to assess your risks when choosing a collision insurance deductible. Consider how likely it is that you will be involved in a collision, the potential cost of repairs, and the value of your car. If you only use your car occasionally and on low-risk roads, you may opt for a higher deductible. On the other hand, if you commute daily during peak traffic, a lower deductible may be more appropriate.

Comprehensive insurance deductible

A comprehensive insurance deductible is the amount you pay for repairs to your vehicle before your insurance company covers the remaining cost. Comprehensive insurance covers damage from events outside of your control, such as fires, floods, falling objects, and vandalism. It also includes theft, vehicle/animal collisions, and glass damage.

When choosing a comprehensive deductible, you need to consider your budget, the value of your vehicle, your savings, and the likelihood of making a claim. A lower deductible will save you money on out-of-pocket repair costs but will result in higher insurance rates. On the other hand, a higher deductible will lead to lower insurance rates but will require you to pay more upfront in the event of an accident.

It's important to note that comprehensive insurance claims usually won't increase your rates unless you file multiple claims in a short period.

Personal injury protection deductible

Personal injury protection (PIP) is a type of "no-fault" auto insurance coverage that reimburses the insured party for medical expenses, lost wages, and other costs incurred as a result of an accident. PIP is mandatory in some states, and available in others.

The PIP deductible is the amount of money you pay out of pocket before your auto insurer can cover a PIP-related claim. The PIP deductible options vary by state, with some states offering deductibles of $250, $500, and $1,000, and others allowing higher deductible options of up to $2,500. Some states, such as Utah, do not allow deductibles for personal injury protection.

When choosing a PIP deductible, consider the following:

• Your health insurance coverage and deductible: If your health insurance plan overlaps with your PIP coverage and has a low deductible, you may opt for a higher PIP deductible to lower your car insurance costs.
• Your financial situation: A higher deductible will result in lower insurance premiums, but you will have to pay more out of pocket if you file a claim.
• The likelihood of filing a claim: If you have a history of accidents or live in an area with busy roads, you may be more likely to file a claim and pay a deductible.
• State laws and requirements: Some states legally specify the deductible amounts that must be offered by insurance companies, while others do not.

Uninsured motorist property damage deductible

Uninsured motorist property damage coverage, or UMPD, is auto insurance that pays for damage to your car or other property if you’re hit by a driver without car insurance. It also covers damage caused by an underinsured driver, i.e., a driver who does not have enough insurance to pay for the damages. Typically, UMPD is combined with uninsured motorist bodily injury coverage, which pays for injuries sustained in a crash with an at-fault driver who has no car insurance.

UMPD covers repair costs to fix your car, extra costs if the other driver doesn’t have enough property damage liability insurance, and damage to your home or other property. It is important to note that UMPD only covers damage to your vehicle caused by a driver with little or no insurance. In contrast, collision coverage applies to any damage to your vehicle caused by a collision with another vehicle or object, regardless of fault.

The availability and requirements of UMPD vary by state. Some states require drivers to carry it, while others mandate insurance companies to offer it and allow drivers to decline it. The deductible amount for UMPD also differs by state and usually falls between $100 and $1,000. In some states, UMPD coverage may not include a deductible, while others require a deductible, typically ranging from $200 to $500. Additionally, a few states do not allow UMPD coverage for hit-and-run accidents, necessitating collision coverage for such scenarios.

When deciding between UMPD and collision coverage, consider that collision coverage offers protection in more scenarios, including accidents where you are at fault. On the other hand, UMPD generally has a lower deductible and may cover damage to both your vehicle and other property. If your state permits both coverage types, combining them can ensure comprehensive protection. However, if cost is a primary concern, UMPD is generally more affordable, especially for high-value vehicles.

Choosing a deductible you can afford

Choosing a car insurance deductible that you can afford is an important step in your financial planning. Here are some key considerations to help you make an informed decision:

Understand the Purpose of a Deductible:

A car insurance deductible is the amount you pay out of pocket before your insurance company covers the rest of the costs in the event of a claim. Typically, collision, comprehensive, uninsured motorist, and personal injury protection coverages include a deductible. You usually have the option to choose between a low and high deductible.

Evaluate Your Financial Situation:

Consider your savings and emergency funds. If you don't have a substantial cushion, opting for a lower deductible may be more prudent. Ask yourself if you can comfortably cover a higher deductible amount in the event of an accident.

Weigh the Costs:

A higher deductible generally leads to lower insurance rates, while a lower deductible results in higher rates. Evaluate the potential savings by comparing the difference in insurance rates between high and low deductible plans.

Assess Your Risk Factors:

Consider your driving history and the likelihood of filing a claim. If you have a history of accidents or engage in high-risk driving behaviours, you may be more likely to file a claim. In such cases, a lower deductible might be more suitable.

Determine Your Car's Value:

The value of your vehicle plays a role in choosing your deductible. If your car is worth less, a lower deductible is often preferable, as the potential repair costs are lower. Conversely, for a more expensive car, a higher deductible may make sense.

Calculate the Cost Difference:

When comparing insurance policies, look at the price difference between high and low deductible plans. Consider running different scenarios, such as filing no claims, one claim, or multiple claims, to understand the potential out-of-pocket expenses under each plan.

Evaluate Your Tolerance for Risk:

Choosing a high-deductible plan assumes that you won't have an accident. If you're comfortable taking on that risk, a high-deductible plan can result in lower monthly costs. On the other hand, a low-deductible plan provides peace of mind and lower out-of-pocket expenses in the event of an accident, but at the cost of higher monthly rates.

Remember, there is no one-size-fits-all answer. The key is to assess your financial situation, driving habits, and comfort level with risk to make an informed decision about your car insurance deductible.

Frequently asked questions