A COMPREHENSIVE NOTE ON DEDUCTIBLE IN CAR INSURANCE
If you own and drive a car, insurance coverage is not only a necessity, but it is a mandate by the law. While buying car insurance, a common question asked by the insurance agent is what would be the deductible in the insurance. If you are not too well-versed with car insurances and the related terms, you would probably wonder what on earth this deductible is. This article is intended to educate you about what does deductible mean in car insurance and how it can affect the insurance rates.
What does deductible mean?
In the unfortunate event of an accident, a car that is properly covered under the safe umbrella of auto insurance is eligible to receive all payments for repairs. Well, not all of it actually. While the insurer will cover almost all of the repair cost, a part of it has to be paid by the owner of the car as well. This is called the insurance deductible, which is basically the money that has to be paid out of the pockets of the insured car owner before the insurance company pitches in and covers the rest. The owner will have to pay the deductible amount or the total repair cost whichever is lower.
If you opt for collision and comprehensive coverage, the deductible would be different for both the types of coverage. This means that when you get a comprehensive coverage against any damage that happens to the car, the amount that you would have to pay as the deductible will not necessarily be the same as the amount that you would have to pay while claiming the collision coverage amount.
There are different deductibles which vary as per the insurance company and the state. The most common deductible in car insurance are $100, $250, $500, $1000 or $1500. To understand what does deductible mean in car insurance, you may want to look at the following example. If you have a deductible of $500 and the repair costs for the damaged car is $2500, you would have to pay $500 from your own pocket and then the insurance company would pay the remaining $2000. However, if the accident is a minor one and the repair charges come to a meager $450, you will have to pay all of it from your own pocket and the insurance company will practically pay nothing in this scenario.
Impact of deductibles on insurance rates
It goes simple. The deductibles are inversely proportional to the insurance rates. This means that the higher the deductible, the lower the insurance premium cost. With a higher deductible, you are taking more risk on yourself and reducing the risks of the insurance company, which is why they can afford to reduce the insurance rates for you.
However, there is a flip side to it. By choosing a higher deductible, you may initially save a lot on the insurance premium, but in case your car meets an accident and the damage costs you a good amount of money, a hole would be burnt in your pocket as you pay for the repair charges before the insurer chips in. Imagine paying a thousand dollars for a car repair out of your own pocket, with the car being covered under insurance.
Hence, it is wise that while choosing the deductible amount in your car insurance, you should not only look at its role in lessening the insurance premium amount, but also select that figure which you would be able to afford to pay in case the car needs to be sent to the workshop for repair works.
Tips to choose the right deductible
Choosing the right deductible while buying the car insurance is very important as it impacts the final premium amount. However, as mentioned earlier, you cannot blindly choose a higher deductible amount because the risks would be higher in that. You need to check your financial status first. If you feel that the deductible amount is something that you can afford to shell out from your bank account in case of an accident, you can opt for that deductible figure only.
For example, if you are okay to shell out $1000 in case an accident occurs, you can choose the $1000 deductible with your car insurance, as that will reduce the premium rates quite significantly. However, if you do not have that much ready to be shelled out, you would need to choose a lower deductible and pay a comparatively higher premium.
The second thing that you would need to consider while choosing the best deductible is your driving record. If you know that you are a safe driver and have not met an accident so far, you can possibly take the risk of opting for a higher deductible. It is true that no one has seen the future and it does not necessarily mean that if you have not met an accident so far, you will not meet one in the future. However, if you want to pay a lower insurance charge, you will have to gamble on this point.
A point to remember
In your effort to save on a few hundred bucks on the insurance premium, you may call upon a financial disaster for yourself if the deductible is high and your car undergoes a repair work. It may not always be an intelligent move to select a higher deductible as that could backfire and hit you badly later on.
While shopping for car insurances, do check out various options and combinations of deductible as offered by the different insurance companies. Most of the insurance company websites have an online deductible calculator which can be used to determine the right balance between the deductible amount and the premium amount. That will ensure that you get the best quoted insurance with a perfectly balanced deductible which will not expose you to the threat of a hefty garage bill in the future. It is certainly good to be smart, but too much smartness with the deductibles in car insurance could prove to be a not so smart step in the future.
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