How a Car Insurance Deductible Works

When you receive a car insurance quote, the premium cost is not the only factor you should be considering. Other variables should also influence your final decision on purchasing car insurance. Among these other factors are the availability of discounts, liability limits, coverage for such things as windshield replacements and rental cars, and deductible amounts.

A car insurance deductible is the amount that you agree to pay out-of-pocket for repairs after an accident, before your insurance company will pay the remainder of the bill. You might ask, “If I have insurance, why should I pay anything if I am in an accident?” The answer to your question is fairly straight-forward. You agree to pay the deductible in order to keep your premium costs lower. For example, you may have a company that will give you a car insurance quote for a policy with no deductible, but the premium for such a policy will be much higher than if you agreed to a reasonable deductible amount. Deductible amounts may be different in each state and may vary between different companies; however, it is typical to have policies with deductible amounts in the range of $250 to $1,000.

Insurance companies generally require deductibles for two reasons. First, when you are paying a deductible, the insurance company will not be responsible for the amount of the deductible when it goes to pay your repair bill. Thus, the deductible helps the insurance company save money, which it can then pass along to its customers in the form of lower rates. Second, when you know that you have a deductible to pay if you are in an accident, there is a built-in incentive for you to drive more carefully, potentially saving the insurance company even more money.

In deciding on a deductible amount that is right for you, first consider your savings. How much do you have set aside if you are in an accident? How easy would it be for you to pay the first $100 of the repair bill? The first $250? The first $1,000? Also, think about your driving record. How many accidents have you had in the past several years? How many accidents might you have in the next year? Remember that the deductible amount applies to each accident; it is not a yearly deductible like you may be used to with many health insurance plans.

A car insurance deductible is the amount that you agree to pay toward repairs after an accident. The higher the deductible, the lower your premium will be. As you consider cheap car insurance, make sure you weigh all of your deductible options.

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