How Do Deductibles Work?
Deductibles are an important consideration when choosing car insurance. They determine what you pay, out-of-pocket, for the cost of a claim.
Let’s say you have a $500 deductible on your car insurance policy. You are in an accident. The damage costs $2,000. The auto insurance company pays $1,500, and you pay the remaining $500 (the deductible cost). The insurance company will only write a check for the repairs for $1,500. If the cost of damages falls below $500, then the insurer will pay nothing.
Why Picking the Right Deductible Is Important
The key to deductibles is to consider how much money you have on hand on a routine basis. In the above example, if you do not have $500 put away in a savings account, and you are in an accident, that might make it hard for you to pay your portion to get the repairs. While the insurance company would pay $1,500, that is not enough to get your car back on the road.
When choosing one, then, be sure it is the amount you have readily available to handle an emergency like this. Keep in mind that most policies have a deductible of at least $500, but they can be much higher.
Raising Your Deductible Saves You Money
Once you know how much you can comfortably afford to pay, the next thing to consider is the impact it has on your premium. The premium is the cost you pay to buy auto insurance. The higher your deductible is, the less the auto insurance company has to pay for any type of claim you make. As a result of that, they might reduce your premium if you have a higher deductible.
Your goal, then, is to find the right balance. Choose a deductible that is high enough that it reduces your premium, but is still an amount that you can pay comfortably. By doing this, you might reduce your costs significantly. Yet, if there is an incident, you are able to pay for it, out-of-pocket, without any worry about not having the cash on hand.