How Does a Car Insurance Deductible Work?

Last updated August 8, 2022

How Does a Car Insurance Deductible Work?

Nearly every state requires drivers to carry a minimum amount of auto insurance coverage. And every insurance policy is made up of two costs: a premium and deductible. Learn how your car insurance deductible works, so you can choose a policy that meets your needs and budget.

What is a deductible in auto insurance?

When you purchase car insurance, you are essentially entering into a contract with the insurance company. In exchange for your premium payments (the amount you pay on a monthly, annual or bi-annual basis), the company agrees to pay for any damages that you incur while driving in accordance with your policy terms. However, most insurance policies come with a deductible. So, what is a deductible in auto insurance?

A deductible is the amount of money you are responsible for paying out of pocket after an accident before the insurance company steps in and pays the rest. You choose your deductible amount at the start of your policy agreement, which can range in price, but most commonly is $500 or $1,000. It’s important to choose an amount you would be comfortable paying out-of-pocket in the event of an accident.

How does a car insurance deductible work?

If you get into an accident or experience an event covered by your insurance policy, you must pay your deductible before your insurance company will contribute to the cost of damages. For example, if you have a $500 deductible and you get into an accident that causes $1,000 worth of damage, you will need to pay the first $500, and your insurer will cover the remaining $500.

When selecting your car insurance policy, you might notice that policies with a higher deductible have a lower premium. However, it’s important that you choose a policy with a deductible you can pay out-of-pocket if necessary.

If you get into a car accident or damage your vehicle, you can’t change your deductible amount or switch insurance providers before you file your claim. You must start the claims process with your current provider and pay your deductible. However, once the claim is submitted and closed, you can evaluate your options and make changes as needed.

How much deductible should I choose?

Deciding what deductible you should choose can be a tricky balancing act. On the one hand, you want to make sure you’re protected in the event of an accident without too much financial strain upfront. On the other hand, you don’t want to overpay for coverage that you may never need. One way to strike the right balance is to choose a policy with a deductible that makes sense for you.

Generally speaking, the higher your deductible, the lower your premiums will be. That’s because you’re essentially telling the insurance company you’re willing to take on more risk. Of course, this means that you’ll have to pay more out of pocket if you do get into an accident. But if you’re a safe driver and don’t think you’re likely to get into an accident, this could be a good option for you.

On the other hand, if you’re not comfortable with the idea of having to pay a large amount of money out of pocket if something happens, you may want to choose a policy with a lower deductible. This will mean that your premiums may be higher, but it could give you peace of mind knowing you won’t have to come up with a lot of money in the event of an accident.

How to find a policy with the best car insurance deductible for you

Finding an insurance provider that offers a happy medium and a deductible that works for you doesn’t have to be complicated. You can start today by receiving personalized auto insurance recommendations based on your driver profile and preferences. Complete our short, five-question form to tell us a little about yourself, and we’ll match you with competitive insurance providers with policy options that meet your needs and budget.

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How Does a Car Insurance Deductible Work?