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Auto Insurance Deductible: How Is This Amount of Money Determined

Updated: October 31, 2018

Whenever you are getting a new auto insurance policy, it is important to look at the fine print.

It is important to understand the levels of comprehensive, collision and liability coverage you are getting, along with the policy’s deductible.

The deductible in an auto insurance policy is the amount of money you will have to pay out of pocket when you get into an accident.

No matter how much damage is incurred to the vehicle, you have to pay the auto insurance deductible before the insurance company provides compensation.

Here is a look at how the auto insurance deductible is determined for insurance policies.

What is a Deductible in Car Insurance?

The deductible in your auto insurance policy refers to the exact amount of money you are going to pay when you get into a car accident and request compensation from the insurance company.

When the deductible is paid, the insurance company will take care of the rest of the expenses as agreed in the insurance contract.

For example, an individual gets into an accident and is deemed at fault. If they have liability and collision coverage, their policy will pay for damage to both vehicles and medical expenses for the other party in the accident.

However, the insured individual must pay a certain amount of money (their deductible) before the insurance company can provide any form of compensation related to the accident. If this deductible is $500, the individual must pay $500 from their own pocket.

When the deductible is paid, the insurance company will take care of the rest of the expenses as agreed in the insurance contract. The insurance company only pays up to the maximum amount in the specific policy – not more than this amount.

Getting an affordable deductible that you can pay in the event of an accident is an important part of getting the best possible auto insurance policy.

How Does a Car Insurance Deductible Work?

The auto insurance deductible is not complicated, but it is often misunderstood. A lot of people seem to think their deductible changes based on how much compensation the insurance company has to pay out after an accident.

Not only does the deductible determine what you absolutely have to pay after a car accident, but it also plays a role in whether or not you report the accident to your insurance company.

This is not true. If the damages in your accident add up to $600, and you have a $500 deductible, the insurance company will pay $100 after you pay the $500 out of pocket.

Not only does the deductible determine what you absolutely have to pay after a car accident, but it also plays a role in whether or not you report the accident to your insurance company.

For example, people will often get into minor accidents where the damage is superficial. It may not cost more than a few hundred dollars to fix this damage to both vehicles involved in the accident.

Instead of telling your insurance provider and potentially hurting your future premium rate, you can pay out of pocket. If the damage in that accident cost less than $500 to repair, you would have ended up paying out of pocket even if you filed a claim with the insurance company.

Auto Insurance Deductible vs. Premiums

One factor that plays a role in the size of your deductible is the auto insurance premium itself. When an insurance company determines the standard auto insurance premium rate in your specific case, they also tell you the associated deductible.

People who drive their car a lot in busy streets and highways may not want to raise their deductible too much.

Now many people may get quoted a high insurance premium rate, for whatever reason. Perhaps they have a history of accidents or they are in a high risk category. Either way, they may want to lower their auto insurance premium.

One way to lower the premium immediately is to ask the insurance company for a higher deductible. As the premium is lowered, the deductible will go up by a certain amount. It is up to the individual to determine whether they can accept a higher auto insurance deductible in return for lower premiums.

People who drive their car a lot in busy streets and highways may not want to raise their deductible too much.

Since you are at a higher risk of getting in an accident, there is a great chance you will have to pay the higher deductible out of pocket.

Auto Insurance Deductibles Explained

The fact of the matter is that some people cannot afford a certain level of car insurance premiums. They have no choice but to talk with the insurance company and request a higher auto insurance deductible. While this will cost them if they get in an accident, it does save money on premiums.

A typical deductible is anywhere from $500 to $1000, depending on the policy and how low the individual wants their auto insurance premiums to go.

College students and people working low wage jobs may not have the finances to afford the higher premium rate they were quoted. By taking the risk associated with a higher deductible, they can bring their auto insurance premium rate to an affordable level.

If you are going to accept the risk of higher deductibles, you will want to be extra careful when driving. Make sure you are not at fault for any car accident you get into. This will save you from having to pay out of pocket.

A typical deductible is anywhere from $500 to $1000, depending on the policy and how low the individual wants their auto insurance premiums to go.

It is also wise to ensure you have enough money in your savings to handle a high deductible should you be at fault for a car accident.

Deciding on Deductibles Based on Vehicle Value

There are ways to safely increase your deductible without taking on too much risk.

By lowering your premiums and accepting a higher deductible, you can also save money and put it towards getting your next car if the current one is badly damaged or stops working altogether.

Individuals who have relatively inexpensive and older vehicles do not need to bother with high insurance premiums. It is reasonable for these people to jack up their auto insurance deductible in order to lower the price they pay for insurance.

If your vehicle is old and has a low value, it will probably not cost much money to fix. Even if it is totaled, you are not out that much money. You can probably take care of most damage costs out of pocket, while you can also invest in a new car if the old one is completely totaled.

By lowering your premiums and accepting a higher deductible, you can also save money and put it towards getting your next car if the current one is badly damaged or stops working altogether.

This is still a calculated risk, but it is one that can help you save money on auto insurance for a vehicle that has a fairly low value.