Picture this: You’re cruising down the road, wind in your hair, enjoying the freedom of the open road. Suddenly, you hear a loud crash and before you know it, you’re involved in a car accident. Scary, right? That’s where auto insurance comes in—providing protection for drivers and their cars in the event of an accident. But here’s the thing: navigating the complex world of auto insurance can be overwhelming. Terms and concepts like “deductible” can leave you scratching your head. If you’re like most people, you might be wondering what exactly an auto insurance deductible is and how it works?
Don’t worry, we’ve got you covered.
‘Deductible’ defined
Simply put, an auto insurance deductible is the amount of money you agree to pay out of pocket before your insurance company starts covering the cost of damages in the event of an accident. For example, if you have a $500 deductible and get into an accident that results in $2,000 in damages, you’ll be responsible for paying the first $500, while your insurance company will cover the remaining $1,500.
Deductibles can vary depending on the policy and the insurance provider. Typically—but not always—the higher the deductible, the lower your insurance premiums will be. For example, if you choose a $1,000 deductible instead of a $500 deductible, your monthly premium will likely be lower, but you’ll have to pay more out of pocket if you get into an accident.
How deductibles work
Now that you understand what an auto insurance deductible is, let’s dive into another example of how it works. Let’s say you’re involved in an accident and your vehicle sustains $5,000 worth of damage. If your deductible is $500, you’ll be responsible for paying that amount out of pocket before your insurance company will pay for the rest of the damages. In this case, your insurance company would pay the remaining $4,500.
However, keep in mind that your deductible only applies to damages to your own vehicle. If you’re at fault in an accident and the other driver’s car is damaged, your liability coverage will pay for the damages to their vehicle, and you won’t have to pay a deductible.
Additionally, some insurance providers offer “deductible waivers” or “waiver of deductible” coverage, which means that if you’re not at fault in an accident, you won’t have to pay your deductible. This coverage is optional and may come with an additional cost, so it’s important to weigh the pros and cons before adding it to your policy.
Additional deets
It’s also important to note that deductibles can apply differently depending on the type of coverage. For example, if you have collision coverage and comprehensive coverage, you may have a separate deductible for each. Collision coverage applies to damages from accidents, while comprehensive coverage applies to damages from things such as theft, vandalism, or natural disasters.
If you’re involved in an accident and both your collision and comprehensive coverage apply, you’ll have to pay both deductibles before your insurance company will pay for the rest of the damages.
Why they exist
So, why do insurance companies have deductibles? The main reason is to reduce the number of small claims that are submitted to insurance companies. For example, if you have a $100 deductible and get a small dent in your car, it might not be worth it to file a claim with your insurance company because you’ll have to pay the $100 deductible anyway. By requiring policyholders to pay a portion of the damages themselves, insurance companies can avoid paying for small claims and keep premiums lower for everyone.
The Takeaway
To sum it up, an auto insurance deductible is the amount of money you agree to pay out of pocket before your insurance company will cover the cost of damages in the event of an accident. Deductibles can vary depending on the policy and insurance provider, and the higher the deductible, the lower your monthly premiums will typically be. If you’re not sure what your deductible is or have questions about your coverage, it’s important to reach out to a trusted insurance agent.
At YourPolicy, we understand that the world of insurance can be complicated, and we’re here to help you navigate it. You can reach one of our experienced agents at (866)236-0203 to ask any questions you may have about deductibles, types of coverage, and so much more. Plus, it’s FREE! We’re dedicated to providing you with personalized service—and helping you find the right insurance policy that suits your needs and budget.
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