A car insurance deductible is the amount of money a driver is responsible for paying after filing a car insurance claim. The driver’s car insurance company pays the rest of the claim, up to the policy’s pre-set coverage limit. Either a driver pays the insurance company for his or her portion of the bill, or the company reimburses the driver for the covered amount.
For example, imagine that you have a $500 deductible and a body shop tells you it will cost $1,000 to repair your car after you hit someone’s mailbox. You file a claim with your insurance company, which reviews and (hopefully) approves coverage for the full amount, minus your deductible. Then you pay your $500 deductible, and your insurance company covers the rest, since the cost of your repairs exceeds your deductible.
The same is true if your claim is $3,000 – you pay $500, and your insurance company pays for the remainder. However, if your claim is $400, the whole repair bill is your responsibility. Your insurance company isn’t responsible for paying any bills that don’t exceed your deductible.
When you buy an insurance policy, you get to choose your deductible. Deductibles can range from $0 to several thousand dollars. The most common deductible amounts on car insurance policies are $250, $500, and $1,000.
The lower your deductible is, the more you pay upfront in premiums. A car insurance policy with a $500 deductible could have a $1,500 annual premium, for example, while a policy with a $1,000 deductible might charge $1,337. In other words, a high deductible costs less up front, but you pay a bigger portion of every claim.
Assess your financial situation before deciding on a deductible. If you have some money saved up, you could use it to pay a high deductible in the event of a collision. That way, you save money on your policy in the short-term and only shell out extra if you really need it. On the other hand, if you don’t want to use savings for car repairs, consider paying more up front for a lower deductible, so your insurance company can cover any future repair bills you might face.
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