What is an automobile insurance deductible? – Councilor Forbes

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What is an automobile insurance deductible?

An auto insurance deductible is the amount of money deducted when you file a claim under an all perils, collision, personal injury protection or property damage protection insurance policy for uninsured / under-insured motorists. insured.

If your car is damaged (it has been hit by hail and needs repair, for example), you usually file a claim with your insurer to cover the loss if you have full coverage. But before the auto insurance company pays to repair hail damage, your deductible is subtracted from your claim check. Typically, the deductible for auto insurance is a fixed amount, for example $ 500 or $ 1,000.

Here’s a quick overview that we’ll explain in detail:

  • Comprehensive, Collision, Personal Injury and Damage Insurance coverage for uninsured / underinsured motorists have deductibles.
  • You choose the deductible amount.
  • Some states specify the deductible amount that must be offered for personal injury protection.
  • A high deductible amount usually means a lower rate.
  • You usually pay a deductible every time you make a claim.
  • Your deductible is taken from the payment of your claim — you don’t actually pay the amount to your insurance company.

How Do Auto Insurance Deductibles Work?

Let’s say it will cost a repair shop $ 5,000 to repair hail damage. If you have a $ 500 deductible on your auto insurance policy, the insurer will subtract $ 500 from the $ 5,000 payment to cover the hail claim. This means that you will receive $ 4,500 to cover the repair work and that you will be responsible for the remaining $ 500.

You choose the amount of your deductible when you purchase the policy, and typically need to cover your deductible each time you file a claim. (You can change your deductible, but the change will not apply to existing claims.)

The most common auto insurance deductible is $ 500. However, the deductible amounts can vary from $ 100 to $ 1,000 or more, depending on your insurance company and where you live.

What types of auto insurance deductibles are there?

Comprehensive coverage and collision coverage are the most common types of auto insurance with a deductible, and each comes with its own deductible. Usually the deductible is the same for both covers, but you can have different amounts.

Comprehensive coverage covers damage to your car caused by incidents unrelated to a collision, such as theft, vandalism, inclement weather, or collisions with deer. Collision coverage pays for damage to your car when you hit another car or object (such as a fence or utility pole).

The maximum payment for Collision Damage and Comprehensive Insurance is the value of the vehicle just before the accident or damage if totaled, less the amount of the deductible.

Deductibles may also be attached to Personal Injury Protection coverage or Uninsured / Underinsured Motorist Property Damage coverage in your policy.

In some states that require personal injury protection, laws specify deductible amounts that must be offered.

Automobile liability insurance, which covers injury or damage you cause to others, has no deductible.

Should I choose a low or high deductible amount?

Keep in mind that a lower auto insurance deductible will normally result in a higher premium because you bear less of the cost of a claim. And a higher deductible will usually result in a lower premium, as you bear a greater portion of the costs if you make a claim.

If you have a car loan, your lender may charge a certain deductible amount, so be sure to check before selecting an amount.

Otherwise there is no “correct” or “incorrect” deductible amount, it really depends on what you are comfortable doing. Generally, if you’d rather pay more for repairs to your car than for insurance, a high deductible may be worth it. Consider the following:

  • A high deductible can make sense if it doesn’t make you nervous about having to pay more to fix your car if you file a claim.
  • You can opt for a high deductible if you’ve already saved money to pay the difference between your repair bill and the claim payment.
  • If you don’t live in an area prone to hail, flooding, or collisions with animals, or if you have a long commute or drive in an urban area, you may be less likely to file a claim, which means that a high deductible might not be a bad choice.

Decreasing deductibles

Some insurers will reward you for your safe driving with an optional feature called “decreasing deductible”. It is also sometimes referred to as the “disappeared” or “disappeared” franchise.

Over time, if you avoid car accidents and maintain a good driving record, your insurer will reduce your deductible. For example, an insurer might offer an annual deductible credit of $ 100 for each year that you remain a safe driver. In this scenario, if you go three years with a clean driving record, your $ 500 deductible could drop by $ 300. This means that your new deductible would be $ 200.

When it doesn’t make sense to file a complaint

It should also be noted that if your deductible exceeds the amount of repairs needed for your car, it does not make financial sense to file a claim. Let’s say your car repair bill is $ 800, but your collision deductible is $ 1,000. In this case, you would end up with the entire repair bill because the repair costs are less than the deductible amount. There is no reason to file a claim in a case like this.

Also, even if your repair bill is more than your deductible, you might want to consider whether a relatively small payment amount is worth a potential increase in the insurance rate at the time of renewal. For example, if you have a $ 1,000 deductible and file a claim for $ 1,600, you will get $ 600 to repair your vehicle. But if it’s a collision claim, your insurance company could increase your rates. This means it could cost more for long term coverage, even if you have $ 600 to fix your car.

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