How do Car Insurance Deductibles Work?

“Understanding deductibles can be handy when you’re picking your insurance company, without knowing the purpose behind them, it’s easy to see deductibles as another hand finding its way through your pocket, after all insurance companies exist to cover damage costs, just not every single one, deductibles do have a purpose.”

Auto Insurance Deductibles

Car insurance deductibles raise a few questions from time to time, typically, deductibles have a direct impact on your annual or monthly premium payments, the higher the deductibles, the less you pay over time.

They will play a role every time you file a claim for collision damage on the vehicle, if the cost to repair the damage does not surpass the deductible amount, it means the costs will be on you.

Car Insurance Deductibles Definition

Deductibles are a certain amount or percentage the insurer agrees to pay out of pocket before the insurance coverage kicks in.

This money is the insurer’s responsibility to pay in case of a filed claim, this usually represents a small amount, depending on your coverage plan.

It’s common practice for many insurance companies to only pay for a claim after the insurer pays for the deductible.

How do Deductibles work?

Imagine a scenario where the collision coverage on your insurance policy has a 600$ deductible and once you have an accident, you’re left with 4000$ worth of damage, in this case, you’ll pay 600$ out of pocket and your insurance company will assume the remaining expenses, being it 3400$ for this specific example, this is how deductibles work.

Average Deductibles For Car Insurance

The average deductible amount is around 500$ but value agreement will depend on a few factors, being the most important ones:

   > Company-specific rates

   > Vehicle’s Age

   > Driver’s Age

   > How Long you’ve had your driver’s license

   > Driver’s accident record

   > Cost of repair in case of critical damage

If you’re new to driving, it will do you some good to aim a little bit higher, even if it’s not a requirement from the insurance company, this will teach you to be responsible and avoid sky-high premium payments off the bat, you’re also letting your insurance company know that you’re an informed individual and you know how deductibles work, those are points in your favor.

Why are Deductibles Often High

Coming as no surprise, a bad driving record will not only increase premium payments but also the value of deductibles.

Deductibles come in the form of mutual agreement and are calculated so they can be affordable for the average citizen but they can also be high enough to keep risky individuals at bay, the value will depend on the customer’s profile.

Shady Insurance companies will often have low deductibles as well as low premium payments but these companies will often burn you along with the money spent if you ever file a claim.

Are Deductibles Included in Your Premium Payments?

On a short note, no.

Your premium payments do not add up towards the deductible.

The deductible only comes into play whenever you file a claim.

Do You Need to Pay Deductibles on Every Claim?

There are a few exceptions, for instance:

A collision where you’re not at fault – If you’re involved in an accident you didn’t cause, assuming the other driver/s is/are insured, then his/their insurance company will pay for repairs with no deductible payment involved from your end, however, depending on your contract, if the fault is shared, you can end up fully or partially paying your deductible.

Liability Coverage – When another person files a claim against you for damage done to their property, chances are that your insurance company will cover all the costs as long as the damage doesn’t exceed the liability limit.

Glass coverage – Depending on your insurance, if you need glass repair, often no deductibles are applied, however, the situation might change when the glass needs to be replaced.

Which types of insurance have deductibles?

In the auto field, it’s common to pay deductibles on collision and comprehensive types of insurance.

   > Collision coverage – It englobes payment for repair of damage coming from a collision with another vehicle or object.

   > Comprehensive coverage – Englobes losses not coming from driving activity, such as natural disasters or theft. 

Other kinds of coverage such as liability and personal injury typically don’t have deductibles attached.

Why insurance policies have deductibles?

If insurance companies didn’t apply deductibles, there would be a higher probability of reckless driving, this way, if a given driver knows that the result of being reckless will set him back a few hundred dollars, he’s more likely to drive safely.

Minor expenses and repair are another reason for the existence of deductibles, if every minor accident fell under the insurance company’s responsibility, they would have a hard time dealing with every claim, this would massively raise the insurance price.

Final Thoughts

Make sure that you have enough money put aside to pay the agreed deductible, unfortunately, accidents do happen and it’s in your best interest to cooperate with your insurance company when bad times surface.

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