No-fault insurance works by requiring drivers to use their own coverage to pay for their medical expenses after a car accident, regardless of who was at fault. Most states that use the no-fault insurance system require drivers to carry personal injury protection (PIP) to pay for their medical expenses. As a result, PIP is often referred to as no-fault insurance coverage.
Key Things to Know About No-Fault Insurance
No-fault insurance covers medical expenses after a car accident, regardless of fault, as well as funeral costs, lost income due to injuries, childcare expenses, and survivors’ loss.
No-fault insurance does not cover the cost of vehicle repairs.
A $1,000 deductible is better than a $500 deductible if you can afford the increased out-of-pocket cost in the event of an accident, because a higher deductible means you’ll pay lower premiums. Choosing an insurance deductible depends on the size of your emergency fund and how much you can afford for monthly premiums.… read full answer
How to Choose Between a $500 and a $1,000 Deductible
1. Figure out how much you would save on your premium with a $1,000 deductible.
The goal is to determine if those savings are worth paying an extra $500 out of pocket after an accident. Car insurance companies typically use a $500 deductible to give quotes, which means you’ll need to make a point of checking how things change with a $1,000 deductible.
Remember that the premium savings will not always be proportional to the extra out-of-pocket costs after an accident. For example, Progressive reports that doubling your deductible from $500 to $1,000 may result in only a 28% decrease in premiums on average.
2. Consider how much you could afford to pay if an accident happened today.
Accidents can happen at any moment, so if you don’t have a lot of savings or expendable income, a lower deductible is usually a safer choice to avoid financial stress after an accident.
3. Determine your car’s actual cash value.
If you have an old car that’s only worth $2,500, for example, you don’t want to carry a deductible of $1,000. It’s too close to the total value of your vehicle, which means the replacement cost wouldn’t put much more stress on your finances than the deductible itself.
4. Make a decision based on your financial situation and preferences.
After evaluating your income, monthly expenses, savings, available credit and car value, it should be clear which is a better deal for you: saving monthly on premiums or saving in the event of an accident.
Although $500 and $1,000 are the most common deductibles, you may want to consider other deductible amounts, too. Some companies offer lower and higher options, such as $100, $250 or $2,500 deductibles.
No matter what you decide, be sure to set aside enough cash to cover your deductible before you need to make a claim. To learn more, check out WalletHub’s guide to car insurance deductibles.
Collision insurance will pay to repair or replace your vehicle after any accident, including ones that you cause. Similarly, personal injury protection and medical payments coverage will pay for your medical bills after an accident, regardless of fault. Several states require PIP or MedPay as part of their minimum coverage limits. And while collision insurance is not mandatory according to any state laws, it is usually required for vehicles that are leased or financed.
Liability insurance is the only type of car insurance coverage required in many states. But if you have a liability-only policy, then you will have to pay out of pocket for your expenses if you are at fault in a car accident. As a result, it’s usually recommended that you purchase as much insurance as you can afford, even if it’s more than your state requires.
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