Choosing the Right Car Insurance Deductible
What Is a Deductible?
The car insurance deductible is the amount you are responsible to pay before car insurance coverage is applied. Liability car insurance carries no deductible but uninsured motorist coverage, collision and comprehensive insurance have one.
You can choose your own car insurance deductible based on what you think you can pay out of pocket after an accident, before your car insurance company begins to cover expenses.
How Much Is a Deductible?
Typically, car insurance deductibles range between $250 and $1,000. That means that each time you file a claim, you will be required to pay the car insurance deductible amount before coverage pays the remainder, up to limits. You can raise your limits, but you will pay more in monthly car insurance premiums. If you exceed limits, you will have to pay for damages on your own.
Speaking with Your Insurance Agent
While you don't want to allow your insurance agent to choose your deductible amount for you, it is a good idea to give your agent a good idea of your financial situation so they can help you decide what you can and cannot afford. Paying less in monthly car insurance premiums may not be the most cost effective way to get coverage if you have an accident.
Consider this: What if you total your car and elected a car insurance deductible amount of $1,000? Will you be able to pay that amount right away? You will need to do so in order for insurance to cover the remainder so you can buy another car.
Choosing a Collision Deductible
Emergency Funds and Auto Insurance Deductibles
If you do not have an emergency fund, it's highly advised that you choose a lower car insurance deductible. You'll need an emergency fund if you elect a high deductible. You should also do a self-assessment for risk. Do you drive during commute hours, late at night, or in areas that have lots of wildlife? Is your neighborhood a high-crime area? Has your car been broken into before? These are all factors you should consider when choosing a car insurance deductible for comprehensive and collision coverage.
Consider how you will feel if you get a fender bender that will cost $700 to fix but your deductible is $1,000. It would make little sense to file a claim because you would be responsible to pay the full $700. Always calculate different deductibles to see how much you'd save in case of a car accident. Ideally, you will do this with a knowledgeable insurance agent that you trust.
Vanishing Car Insurance Deductible
Does your car insurance company offer a vanishing deductible? Vanishing deductibles are very helpful to people who maintain a clean driving record. Most insurers do not offer vanishing deductibles on an auto insurance policy, but it's worth asking.
Why Choose a Higher Deductible?
When you choose a higher deductible you pay less per month in auto insurance premiums on the vehicle. However, if you are in an accident, the insurer is responsible for a lower amount of the repair costs on the vehicle, because you'll be responsible for the deductible amount towards losses.
Multiple Car Insurance Policies
You will have separate insurance deductibles for each vehicle that you insure. You can have a different deductible on each car if you choose.
If you own more than one car, ask your insurance company about a multi-policy discount. Also ask about a vanishing deductible.
What Does an Insurance Adjuster Do After I File a Claim?
You may get an email or call telling you that an insurance adjuster has been assigned to your claim. An insurance adjuster's main job is to inspect property damage and injuries to determine an insurance claim payment. The adjuster will interview you and the witnesses and will take a detailed look at the vehicle damage and police reports about the drivers involved in the accident.
Personal Injury Protection (PIP) and Auto Insurance Deductibles
In most states, personal injury protection (PIP) does not have an auto insurance deductible. PIP covers medical expenses before health insurance begins to cover your bills.
Collision deductibles may apply for motorist property damage, according to the Insurance Information Institute, and you have options on how much to pay on a collision deductible. Other drivers are covered by your liability insurance if you're at fault, and if that fails to cover all damages, you're responsible for the remainder.
If you cannot pay the remaining balance on a claim settlement upfront, you can pay with credit cards or have your wages garnished. If you have assets to protect, they may be at risk. That is why having more than the minimum liability coverage is so important. It's also why affluent drivers buy umbrella insurance to enhance their car insurance policy protection.
Personal injury protection (PIP) only applies to the policyholder and their passengers.
How to File a Claim and How You Pay an Auto Insurance Deductible
You don't pay the insurance company the auto insurance deducible directly. You are simply responsible for that amount in the overall repair expenses or replacement costs. So, if you have a $500 car insurance deductible, and you have a repair cost of $2,500, the car insurance company deducts your deductible and pays for $2,500 of the car repair costs. The claim payment is the total cost minus your deductible amount.
Does Liability Coverage Have a Car Insurance Deductible?
No, liability coverage does not have a deductible because it does not cover car repairs and other losses for your car. It only covers damage you do to others. Your car insurance rate will go up if you are at fault for an accident, but you do not have to pay a deductible on claims filed against you by the other driver.
Will Liability Coverage Take Care of Medical Expenses?
If the other driver and/or their passenger(s) suffer injuries and do not have health insurance, your liability limits may not cover medical expenses, funeral costs and other losses that one may expect if there is a car crash.
You can see what your liability limits are on your insurance policy in the declaration page of the auto policy contract. Consider buying higher liability limits, especially if you have assets to protect. Otherwise, you may owe money after an accident if you are sued.
If you want to protect yourself and your passengers with auto insurance coverage that would take care of your medical expenses after an accident, consider buying personal injury protection (PIP), which would pay for expenses regardless of which driver is at fault. PIP does not have a deductible.