When buying a car insurance policy, some new buyers are shocked and confused when they find out about auto insurance deductibles. Deductibles are an essential part of auto insurance and almost every policy requires you to have them.
But for people who are unaware of deductibles, this article will help you clear all your doubts. While buying auto insurance, there are a lot of things you need to keep in mind to make the right purchase. Well, the same must be done while deciding on your insurance deductible.
So here is everything you need to know about car insurance deductibles; why they exist and how to choose the best deductible amount for your insurance policies. Let’s get started.
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What are Insurance Deductibles?
Let’s start from the basics. What are insurance deductibles? An insurance deductible is a small amount of money that the policyholder has to pay before the insurance company pays the rest of the claim amount.
Policyholders can decide how much this deductible amount will be. They can decide to keep it low, or high. Why would you want to keep deductibles high? We’ll discuss that later.
Let’s say that you get in a car accident and the total cost of repairs comes out to be $3,500. If you claim your collision insurance, you’ll have to pay the deductible amount first. If your deductible amount is $500, then you will have to pay $500 first and then the insurance company will pay $3,000.
Why do Deductibles Exist?
What’s the point of insurance deductibles? Deductibles are solely made to ensure that policyholders do not make unnecessary insurance claims or do not try to commit insurance fraud. How does deductible help in this case?
Think about it. If there is no deductible amount that the policyholder has to pay, they wouldn’t be bothered about any crashes. Even if a small scratch to the car would make them claim their insurance. This could be disastrous for insurance companies.
By making the policyholders pay a small amount first, insurance companies make sure that the small damages to the cars will be fixed (and avoided) by them. No one wants to spend even $500 frivolously.
Insurance Policies With Deductibles
Here are all the different auto insurance policies that require you to have deductibles and some policies that do not require them. First, the policies that do not require deductibles:
Liability Insurance: Liability insurance does not come with deductibles. This policy is used to pay for the repairs and medical treatments of the other driver in an accident caused by you. The other driver will claim your liability insurance and does not have to pay any deductible amount.
Uninsured Motorist Coverage (bodily injury): The bodily injury component of Uninsured Motorist coverage does not require you to pay any deductible amount. This policy can be claimed if the driver at fault does not have liability coverage or has one but it is not sufficient.
MedPay: MedPay is used to cover the cost of medical treatments after a car accident. This policy does not require any deductible payment.
Now let’s take a look at all the auto insurance policies that do require you to pay a deductible amount:
Collision Coverage: Collision insurance covers the cost of vehicle repairs needed after a car accident. It can be claimed irrespective of whose fault the accident was. This policy requires you to pay a deductible amount first before the claim amount is released.
Comprehensive Insurance: Comprehensive insurance covers all the costs of damages to your car due to natural calamities like earthquakes, fires, floods, hailstorms, hurricanes, etc.
It also covers theft, damage due to projectile, animals, riots, and vandalism. Since this covers the cost of car repairs, you need to pay a deductible amount first and then the rest of the coverage amount is released.
Personal Injury Protection: Personal Injury protection plan is often seen as an add-on to MedPay and apart from paying for medical treatments needed after an accident, this policy also pays for any lost wages. Deductibles are required.
Uninsured Motorist Coverage (Property Damage): Uninsured Motorist coverage has two elements to it. While the bodily injury part does not require any deductibles, you will need to pay the deductible amount to get the property damage covered.
Choosing Deductibles: 5 Things to Keep in Mind
Here are 5 things you need to know about auto insurance deductibles. To know more about better insurance policies at affordable prices, navigate here.
Deductibles Affect Your Insurance Premiums: Your insurance deductible directly affects your insurance premium rates. So if you set your deductibles high, the insurance premiums will go down. Reversibly, if you keep your deductibles low, the premium rates will climb up.
Deductible Range: You cannot just decide any amount as your deductible. Most auto insurance companies have a range from which you can choose your deductible. Auto insurance policies such as collision insurance, comprehensive coverage, etc offer a range between $100 to $1,000.
Set According to Need: Decide how much you want your deductible to be based on your needs. For example, if you live in an area where road accidents are common (and people do not drive properly) it is better to keep your deductibles low. This will save you money when you claim your insurance policies.
But for people who are experienced drivers and are assured that a road accident is rare, keep your deductibles high. This will lower your insurance premium rates. But be careful, getting in a car accident will result in you paying more from your pockets.
Payment of Deductibles: When you are not at fault in any road accident, you are not liable to pay the deductibles, except for the policies mentioned above. So if you are claiming the liability policy of the driver at fault, you do not have to pay any deductible amount.
The Average: The average deductible amount in the US is $500. This means that setting your deductible to $500 is the best way to save money on insurance premiums while not paying too much in an insurance claim.