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Understanding The Purpose Of Car Insurance Deductibles

When buying automobile insurance, car insurance deductibles are one of the car insurance terms with which every policyholder should become familiar. In short, the deductible is the amount for which the insured is responsible when certain claims are being made against the policy. The deductible amount will also have a bearing on policy cost.

Nearly every state requires owners of vehicles driven on the road to maintain a minimum amount of insurance coverage on those vehicles. This minimum is called liability coverage. This is protection for the policyholder against the liability of causing an accident that creates injury, death or property loss to one or more other people involved in the accident. Car insurance deductibles do not apply to liability coverage.

Many drivers will carry, in addition to the minimum coverage required by law, add-on coverage that provides more protection than the minimum. This extra coverage, which is spelled out in the car insurance terms of the policy, can include a long list of benefits, each meant to cover specific contingencies. These might include collision coverage, comprehensive protection, medical benefits, protection from being hit by an uninsured or under-insured motorist, plus various other specific amendments.

All of this 'add-on' protection will increase the benefits available from the policy but will also increase the policy cost, or premium amount. Two of them, collision and comprehensive, will also carry what are known as car insurance deductibles. If a claim is made under either the collision or the comprehensive portion of the policy, the deductible is the amount for which the insured policyholder is responsible for paying before the insurance company starts paying their part of the claim. As an example, if a claim is made for $2,000 and the deductible amount is $500, the insured will have to pay the first $500 and the insurer will then pay the remaining $1500.

Deductibles can be of any amount agreed upon, although the standard amount is $500. Generally speaking, the higher the deductible the lower the premium. Choosing a higher deductible, say $2,000 for example, will save money on policy cost but increase the insured's out-of-pocket cost if a claim is made.

The purpose of car insurance deductibles is to discourage policyholders from making claims on small amounts of damage. If $1200 damage is done to a car with a $1000 deductible, there's a good chance the policyholder will skip the claims process (which would likely bring a future premium price hike) and take care of the repairs himself. This saves the insurer $200. While a higher deductible will cause a policy to cost less, you should only choose a deductible amount that you can comfortably afford to pay.

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