A Guide to Car Insurance Deductibles

A car insurance deductible is one of those things most of us have written into our policies, but few of us rarely think about. Yet deductibles are an important part of your insurance decision when it comes time to renew an existing policy or purchase a new one. The amount of your deductible has a direct effect on your premiums.

In case you’re wondering, deductibles apply to other types of insurance as well, including health and homeowners insurance. The principal works the same regardless of the type of insurance policy you are talking about.


Definition of Deductible

As much as you and I want cheap car insurance, insurance companies want customers willing to think long and hard before filing a claim. They do not want customers making claims for every little scratch and dent because it just becomes too expensive. They also do not want customers committing insurance fraud. For both of these reasons, deductibles are widely used.

A deductible is a certain amount of money you agree to pay, out of your own pocket, in the event of an accident or liability claim. If you have an accident that causes $2,000 damage to your car for example, the insurance company pays you $1,500; you pay the remaining $500 yourself.

The deductible forces you to put some “skin in the game.” It also encourages you to be more careful and avoid frivolous claims. The good part about it is that you can adjust your deductibles up or down to meet your budget.

Deductibles and Premiums

The amount of your deductible affects how much you pay in annual premiums. If you choose a higher deductible, you get a lower rate in return. It’s all a matter of assumed risk. The more risk you are willing to take, the less risk your insurance company has to take. That results in lower rates.

Be advised that insurance companies have set minimums for deductibles. Using the $500 amount as an example again, let’s assume that’s the minimum deductible allowed by your insurance for collision and comprehensive. You can raise that deductible to $1,000 or $2,000, but you’ll never be able to go lower than $500.

As for how much money you can save by choosing a higher deductible, that’s entirely up to how your insurance company calculates premiums. You can always get in touch with the representative and ask. However, even if it’s just $100 a year, that could add up to several thousand dollars over a lifetime of driving.

Beyond the Deductibles

It’s true that deductibles play a role in determining how much you pay for car insurance. Nevertheless, if you want the cheapest car insurance possible, keeping your rates low goes well beyond just accepting a higher deductible. It involves understanding how your rates are determined and taking advantage of the opportunities you have to keep them down.

One of the most important things you can do is maintain a clean driving record. That means you drive safely and obey the law whenever you are behind the wheel. Remember that every accident and violation on your record adds to the total amount you are going to pay. And while it’s true time erases blemishes from your record, they’re not erased immediately. Some things can remain on your record for as long as seven years.

The other important thing you can do is shop around. Whenever you are renewing the policy or buying a new one be sure to get quotes from at least five or six companies. Only when you compare those quotes will you be able to find the most affordable car insurance.