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Auto Insurance Information Center

February 2013

How to Choose An Auto Insurance Deductible

The term car insurance deductible can confuse some not familiar with insurance terminology.

How to Choose Your Deductible

Simply put, a deductible on a car insurance policy is the amount of money you agree to pay for a car's accident damage before the insurance company provides any payment towards the damage. Deductible rates can vary by state, but the size of the deductible you choose usually depends on the amount of financial risk you are willing to assume, the value of your vehicle, along with the likeliness of having to file a claim.

How a car insurance deductible works

As described above, a car insurance deductible is the amount of money you are required to pay for vehicle repairs before your auto insurance company pays the remaining amount of the cost, up to the amount of your coverage. So, for example, if your car is damaged in an accident where you are found at fault and your deductible is $500 while the damage to your car is $2,000, you would pay the $500 and your insurance provider would cover the remaining $1,500. Deductibles are applied to comprehensive and collision coverage. Collision insurance covers repairs if with another vehicle or object, while comprehensive insurance covers repair for damage caused by an event other than a collision with another vehicle, such as a tree limb falling on your car, vandalism, theft or an accident involving an animal.

Can you afford your deductible?

The first thing to consider when choosing a deductible is the amount of money you can pay if you are involved in an accident. Most auto insurance companies have deductible levels you can choose, with most ranging from $0 to $1,500. The amount of your deductible directly influences the premium you pay: generally, the higher the deductible, the less your premiums are. On the other hand, if you choose a lower deductible, your premium most likely will be higher since the insurance company will be paying more money to repair your car if it is damaged.

It's not quite as simple as choosing a higher deductible and being done with it however. A higher deductible, while lowering your premium, is not going to matter if you cannot afford to pay for damages to your car in the event of an accident. So, if you decide on a $1000 deductible you need to be prepared to pay that amount, should the time come. Only you can determine the amount you are comfortable paying.

How much is your vehicle worth?

In addition to the financial aspects involved, the value of your vehicle makes a big difference in the amount of a deductible you choose. Usually it's best to follow this simple rule: the more expensive your vehicle, the more it typically costs to insure. Likewise, if your vehicle is 9 years old, it doesn't make sense financially to carry a large deductible, as the cost to repair the vehicle may only be a few thousand dollars more than the deductible itself.

Risk factors

Do you tend to drive primarily during peak times? Do you frequently travel through busy intersections or highly travelled stretches of road? Do you have a teenager or new driver on your policy? These factors can all contribute to a higher chance of an accident, and in that case you might be better off with a lower deductible, as a deductible is payable on every claim you file. Note: Some car insurance companies require a deductible over a certain amount if they consider you to be a high risk driver.

What are the various costs for different deductibles?

Choosing the right auto insurance comes down to having the right amount of coverage for your situation, while being able to afford your car insurance. To help you decide on a deductible amount that best fits you, consider the following: What are your chances of being involved in a car accident? How much do you have saved? Will the premium savings make a higher deductible work financially? If you're a low-risk driver with a clean driving record and the premium savings are significant, it may be worth it financially to go for a higher deductible. Whatever you decide, make sure you can afford your decision: if you are unable to pay your deductible, the savings earned on your premiums will not matter.

Note: These tips are strictly for educational purposes and should not be taken as legal advice.

Sources: dmv.org; thecarconnection.com; carinsurance.org;

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