Getting an auto insurance policy is crucial for those who need to drive a car – nearly every US state requires it. Besides covering you in case of an accident, it also helps you settle the other party as soon as possible and avoid landing in more trouble in the event of an accident. However, getting your affordable car insurance policy starts with how much deductible you can pay in such an event.
A deductible has a close relationship with your annual premiums. The higher the deductible you pay, the lower the premiums; hence strategizing your deductible helps you benefit maximumly from your auto insurance.
To get the most out of your car insurance deductible, you need to master several tips. That includes knowing how it works, being aware of the impacts of raising or lowering deductibles, learning how to get lower rates, and maintaining a higher credit score.
The meaning of car insurance deductible
A deductible is the amount of money you pay toward an insurance loss. For example, an agreed amount is deducted from your claim check if an accident occurs or an incident strikes home.
It is either a specific amount or a percentage of the total amount of insurance on a policy. A deductible also acts as a shared risk between the policyholders and the insurers.
This deductible amount is established by the terms of the coverage and is found on the front page (declarations) of standard homeowners and car insurance policies. Every state determines how deductibles are incorporated into the insurance policy and implemented. Therefore, depending on the coverage types you choose, it is vital to choose a deductible that does not pressure your finances and leave you in debt.
How does deductible work?
Deductibles can be divided into a dollar amount and percentage deductibles. The most common form is a set dollar amount deducted from your total payment when filing a claim. For instance, if you have a $500 deductible and have an insurance loss of $10,000, the insurer will send you a claim check for $9,500.
A percentage deductible is calculated based on the agreed percentage of the insurance value and is mainly applicable to homeowners. For example, if you insure your home for $100,000 with a 2% deductible, it means $2,000 would be cut from every payment claim you make. On the other hand, if you have an insurance loss of $10,000, you will receive $8,000 as your claim payment.
Insurance deductibles, therefore, apply every time you file a claim, except for hurricane deductibles that are used seasonally instead of each time a crisis occurs. In addition, the deductible will only apply to property damaged during an accident or fire and not to the liability portion of homeowners or any best cheap auto insurance policies.
How to choose your car insurance deductible?
After understanding how car insurance deductible works, you can decide whether to go with a higher or lower deductible. However, before settling for any level, you must understand your financial position and choose a reasonable amount. Then, of course, your deductibles affect your annual premiums, even if it is not a direct effect.
Getting an affordable deductible also determines if you will get cheaper car insurance or higher auto insurance rates. As such, here are the two different scenarios to consider when choosing the amount you can pay from your pocket in needy situations:
Choosing a higher deductible
To lower your monthly premiums, you can choose a high car insurance deductible. You can pay a higher amount from your pocket and confidently go for a higher deductible if you have enough savings.
According to the Insurance Information Institute, almost 6% of drivers with collision coverage filed a claim in 2018. According to these statistics, you may be the best driver, but you still share roads with careless drivers who can cause an accident at any point. For that reason, you might be involved in collisions and pushed to pay a deductible to fix your car, even if it was not a faulty accident.
However, you can start with a lower deductible to save towards the emergency fund before switching to a higher deductible. But you should also know that you risk facing higher car insurance rates if you choose a lower deductible.
Taking lower deductibles
If you want to save on your out-of-pocket costs, you can choose a lower deductible if you cannot pay a higher one. Also, suppose you live in an area with a high chance of being involved in an accident. In that case, it is recommendable to choose a lower deductible.
Car insurance deductibles are usually between $100 and $2,000. However, a $1,000 deductible is the most preferred spot for those who want to save on their pocket expenses but still maintain an affordable car insurance policy.
Therefore, increasing your deductible from $500 to $1,000 gives you suitable discounts than shifting from $1,000 to $2,000. Choosing a $250 deductible will save you more money than going for a $100 deductible.
By choosing a lower deductible, you can comfortably save towards your emergency fund and be responsible for the listed amount in time of loss. However, this raises your monthly premiums, and you will not enjoy insurance discounts offered by insurers.
What if you cannot pay the car insurance deductible?
You should file a claim to your insurers so that they can process your payment and car repair in the cause of an accident. A check will then be written by your insurance company with an amount responsible for the coverage. You will have to pay for the remaining amount from your pocket as the deductible.
In some situations, however, you may be unable to raise the amount to settle the damages caused during the accident or repair your car. In such cases, you can take the following options:
Discussing a payment plan with your mechanic
You can ask your mechanic to waive your deductible or negotiate a perfect payment plan if you can’t cover the remaining amount. Having a payment plan can help you get the vehicle repair done now and then make later payments for the remaining amount. That way, you don’t have to pay it all upfront, which can take a sizable chunk out of your bank account.
Taking your car to a different mechanic
Your insurer will also allow you to take your car to a different repair shop if you are uncomfortable with your used mechanic. Find a professional with lower repair costs by taking your car insurance payment check to another repair shop. Compare quotes before making the final decision to find the best deal from the most reputable provider.
Taking a personal loan
Suppose your vehicle needs a fix ASAP, and other parties after involved in a fault accident. In that case, you may decide to take a personal loan. This will help two parties get back to business sooner than waiting until you get the required deductible.
Consider other available supplement options
Other options include asking close family members or friends for a financial gift and using a credit card with good credit terms to help settle your car insurance deductible. You should, however, seek a financial expert’s advice to know the effects of paying your insurance loss with external sources. They can help you weigh the risks to make a more informed decision.
The bottom line on your car insurance deductible
A deductible is an amount payable for the fault you pay towards an insurance loss before your filed claims come to action. There are several factors to consider depending on the type of deductible you use.
They include the average cost of car insurance, your driving history, and your financial status. Thus, choosing a higher insurance deductible lowers your annual premiums and allows you to gain numerous insurance discounts available from insurers. On the contrary, a lower deductible enables you to save towards emergency funds but increases yearly premiums.
About today’s writer
Rose Rosie is a writer for the personal finance website Joy Wallet, which provides readers with useful information, resources, and tools to help maximize their financial fitness.