Car insurance deductible is a basic part of your insurance policy. It is the amount which you have to hand over in order to begin you car insurance, for the sake of the damage your car is involved in. And upon several surveys and analysis it has been concluded that the most suitable amount of deductible, to set, is $500.
What is a Deductible?
A deductible can be defined as the amount you (a policy holder) have to pay annually for any type of coverage or services you acquire from the insurance companies. After the deductible being paid, the insurers now take care of the rest of the expense. This applies to every type of insurance available in the market.
It is usually a fixed amount set by the companies according to their own terms and conditions. Generally the amount of deductible recommended by most of them is $250, $500, $1,000, $2,000 and $2,500. The amount of deductible should be chosen wisely because it is the mandatory yearly expense which you, solely, have to pay out of your own pocket.
Example: Let’s say you have a deductible worth $1,000 and you come across an accident which costs you a damage of $3,000 then to file a claim to your insurers you have to pay the thousand dollars first in order to make the insurance work which would be paying the remaining $2,000 but on the other hand if the damage requires only $1,000 to be repaired then you have to pay the whole amount, insurers will not contribute in it.
Therefore, while taking the insurance, the deductible you choose can be beneficial to you but sometimes it may not be of any help no matter what your current financial circumstances are.
Other then the deductible the ‘out of pocket’ terms include
Copays: The copays are the fixed amount of money that you have to pay for specific health care expense where you do not need to pay your deductible first. Such as you might pay a 10 dollar copay while visiting a doctor or may be $50 while visiting a specialist.
Coinsurance: While coinsurance is the amount you will pay after meeting your deductible. This amount can be measured as percentage of total cost of care such as 20% or 10% of the total insurance cost.
But these specific terms are only applicable to the health insurance whereas in car insurance only deductible is considered as the authentic term.
Types of Car Insurance Deductible
Car insurance deductible is the money given by the insured for an event which is then further settled by the car insurance company. It is the threat or risk shared between the insured and the insurer. But unlike health insurance, the deductible in auto insurance is paid only when you file a claim.
The deductible can be divided into two categories i.e. compulsory deductible and voluntary deductible. This division is based on the necessity of having the deductible. Following are the few points which make both of the type distinguishable:
| Sr. No. | Compulsory Deductible | Voluntary Deductible |
|---|---|---|
| 1 | As the name indicate it is mandatory to have this type of deductible. | This is optional |
| 2 | This is the amount which you are asked to pay in case of any claim | In this type, you voluntarily promise to pay a specific amount when a claim arises. |
| 3 | It is regulated by the insurance regulator | It is decided by you only |
| 4 | In this type there are no discount offers | By having this type of deductible you can have discount on your premium such as if you opt for $500 deductible you will have 15-20% discount |
| 5 | Compulsory type can be taken alone | Voluntary deductible is taken in addition to the compulsory deductible |
| 6 | This amount depends majorly upon the capacity of your car engine such as if your car is 1500cc or more it will have a deductible of $27 and if less then 1500cc then $13 deductible | Before choosing this amount carefully examine your credit, risk exposure, driving history, etc |
| 7 | It does not affects the insurance premium | Whereas it has a direct impact on the car insurance premium |
| 8 | For example if your car is of 1500cc and the damage it is involved in, is worth $1,008 then the deductible which you have to pay is $27. | Considering the condition, if you have both type of deductibles then in case of claim you have to pay $27 + $500 for it |
How Car Insurance Deductible Works?
How does car insurance deductible work? Working of auto insurance deductible is quite easy because it only occurs when you meet any accident. After the accident, you have to file a claim with your car insurer but this claim only activates when you have paid your part of the price i.e. the deductible. For example;
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If you have a deductible of $500 and the damage costs $5,000 repair charges then you would only be responsible for the 500 dollar the rest 4,500 dollars will be paid by the company.
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Similarly , if the deductible is $750, and the loss is of $1,000 then the company will only pay the 250 dollars.
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But, if your deductible is $1,000 and the accident damage costs only $800 then you will be liable for this payment, the company will not help you out. Because the insurers will only pay the damages above your deductible.
The deductible is not applicable to liability car insurance but is applicable to the collision, comprehensive and uninsured motorist coverage.
The plus point of having deductible for this type of insurance is that it only applies when you file a claim. So if you think you are a better driver with a good driving history then you might want to choose a higher deductible as you won’t be claiming any time soon.
Things to Consider while Choosing Auto Insurance Deductible
Choosing a deductible can be a very hectic experience because if you go for low price, you would be giving much higher premium whereas if you opt for high deductible, you would be in real financial problem while filling the claim. Here are some things which you might want to consider prior choosing the right amount:
1. Your Credit Store: If you have a large buffer then you can easily go for big deductible and it will help you to save on the monthly premium on the other hand if you do not have such buffer then you may want to choose low deductible.
2. Value of Your Vehicle: This is the most important factor to consider because if your car is worth only a few thousand dollars then the right thing would be to choose low deductible. For example;
- If total of your car is $45,000 and your deductible is $1,000, then your insurer will pay the rest $44,000
- But if your car is worth only $1,200 then there is no use of having 1,000 dollar deductible you should settle for $500 or $250 deductible or maybe lower
3. Your Lender: Sometimes the selection of deductible maybe your lenders choice if you are financing your car. Therefore if he requires you to have certain type of coverage and deductible then you have to follow it even if you can afford higher you would still follow his request.
4. Driving History: You are very familiar with your own driving history and your driving style whether you have been involved in many accidents or not. This would come in handy while choosing the deductible because if you have poor driving record then it would be foolish to go for high deductible. Because you would end up in financial loss due to continuously claiming the accidents.
Summary:
Sometimes the price can be very difficult to pay or other times it is not even an issue to file the claim. Therefore working of car insurance deductible can be tricky because you have to consider various factors prior choosing the amount of it.
Average Car Insurance Deductible
The average amount which you have to pay to start your car insurance is $500. The reason behind considering it as an average is that whenever you file a claim, this deductible will always be less than the cost of repairing required after any kind of damage or loss.
High Vs Low Deductible
The amount of deductible is inversely proportional to the premium rates which are paid monthly or annually. The lower deductible means paying higher monthly rates and if you choose a higher deductible you will ultimately have to pay less average per month rate.
Having more coverage but low deductible means you have to pay less for the damage while the insurers will cover most of it. Now this might seem advantageous but in this case you would have to look out for your premium rates.
To make it simple or more understandable, first review the rates of the different types of car insurance you are choosing from. If you are going for expensive coverage then you might want your deductible to be $500 or more but if the coverage is cheaper only then you may settle for a 100 dollar deductible only.
This suggests that no matter how high or low your deductible is, it should fulfill its purpose which is to balance the monthly or yearly premium of coverage.
Car Insurance Deductible Waiver
The car insurance deductible waiver means letting go of the price which you have to pay to kick off your insurance policy. It is basically known as ‘CDW’ short for ‘Collision Deductible Waiver’. This is basically a supplementary thing which you can buy along with the collision coverage. And the sole purpose of it is that if your car is damaged by an uninsured driver then the collision deductible will be paid by the insurers.
Ways to Waiver your Car Insurance Deductible:
The word ‘waiver’ means renunciation of the amount or the price which you are bound to pay after filing the claim. There are following ways by which your deductible can be waived off:
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If you have a broader collision coverage and you only have a little bit fault in an accident then you don’t have to pay the deductible or if the other driver is completely at fault then his or her insurance will pay your loss and your deductible too.
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Second option could be purchasing a CDW which will help you to pay the price when the driver at fault is uninsured, or your car is a total loss and also when the at fault driver has same insurance as yours. But it is not applicable in every state.
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Third could be purchasing uninsured motorist coverage which assists you in repairing if the other driver has no insurance.
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The last option is to have a comprehensive car insurance policy which will waive your deductible in case you want to replace your window or the windshield because of some crack.
Therefore there is no complete solution for this problem but by considering these factors you may be able to decide easily and quickly.
Pros & Cons of Auto Insurance Deductible
This thing in auto insurance policy brings along with it advantages and disadvantages both. As no one thing can be purely beneficial, every thing has some drawbacks too. Following are the benefits and detriments of having deductible:
Pros
One of the major advantage of having a deductible is that it can help in reducing your insurance premium by increasing the deductible you are ready to pay. Increasing the dollars from $250 to $500 on your car insurance can reduce the premium costs of collision and comprehensive coverage. Moreover setting for a $1,000 maybe even more helpful.
Another benefit is having the option of choosing the amount which suits your own budget. If you can afford few hundred dollars worth repair then you can choose higher deductible to save budget on your monthly premium. While if you come across some unexpected expense which could be the cause of financial disaster then you could transfer your burden over to the insurers by selecting low deductible.
Cons
Having a deductible can be disadvantageous too because at times you could be the only one paying for the damages and the premium which would make your insurance policy useless. This could happen if your car never encounter any severe damage that may costs more than your deductible. In this condition you would be responsible for both your monthly premium and deductible.
Not just it, having a deductible also means that some times you may want to arrange large amount of money in short period of time to fix your car. It is generally difficult in case of having large deductible.
Reasons of having Auto Insurance Deductible
All the terms and conditions of auto insurance have their own significance just like deductible. There are few important reasons of having deductible as a part of insurance:
- It protects against the unreasonable losses and damages.
- Also cushions the financial stress which can occur by accumulation of small losses
- It also helps the insurers to reduce the risk of moral hazard because the policy holder might not take the insurance seriously and may drive in reckless manner making it difficult for the insurance to pay the price.
- Also assist the insurance companies to share the rate with the insured person too.
Frequently Asked Questions
What is the best deductible for car insurance?
The best deductible can not be taken as any fixed amount because it depends on various factors such as your credit store, driving history, type of coverage, your car’s worth, etc. The best deductible could be as low as $250 or as high as $2,500, the choice would be yours.
What is a good deductible?
A good deductible in case of health insurance could be $1,350 for an individual or up to $2,700 for a family plan. But in case of car insurance a good deductible could be $500 on every claim saving you from worst conditions.
Are high deductible plans worth it?
High deductible plans are worth it as they help in keeping the monthly costs low but they can put you in a position of paying these high prices, frequently, every time you are involved in an accident. Also high amount can be helpful for your high value vehicle.
Do copays apply to deductible?
Copayments are the fixed amount which you have to pay every time you visit a doctor or fill a prescription usually $20 to $30 whereas the deductible is usually measured in thousand dollars. But the plans usually do not include the copay to your health insurance deductible.
What is considered a low deductible?
A low deductible in case of auto insurance could be $500 or usually less than it, maybe $250. But in case of health insurance less than $1,400 for individual or $2,700 for family is considered as a low deductible.
Conclusion
Having a car insurance deductible is a good characteristic of an insurance policy as it is helpful in many ways. The only thing which you should consider before choosing the policy should be the right amount of deductible as it may be good or may be bad for you. Although the average good amount is $500 if you have an appropriate amount of credit store.