The deductible with your auto insurance carrier is the amount that you will pay out of pocket before the insurance reimburses for the vehicle’s damages. You will choose the amount of your deductible based on how much you feel you can afford to pay out-of-pocket and then the insurer is going to be responsible for paying the rest. The higher the deductible that you choose will make your premium rates lower and the lower the deductible makes your premiums that much higher.
How Deductibles Work
Auto insurance deductibles work in the way that the insurer is going to reimburse you the difference between your deductible amount and the total cost for the vehicle repairs up to the limit of your policy. So, if you have a car accident with damages in the $4,000 range with a deductible of $1,000, you will be responsible for paying the $1,000 out of your pocket and the insurer will pay the remainder.
Deductibles are linked to the comprehensive and collision aspects of your auto insurance coverages as opposed to the liability portion. Liability covers property damages as well as bodily injury that you were at fault for. The deductible amount will be based on the terms of your specific auto insurance plan. There are rare policies that don’t have any deductible, but these typically cost significantly more than those that do.
Paying The Deductible
The deductible portion of your auto insurance plan is to be paid after you have a vehicle accident and you have filed a claim with the insurance carrier. If you opt to not have the car fixed, the carrier will cut you a check for the portion that they would have been responsible for not including your deductible.
Determining the fault for the accident is not always easy to determine. If you are found not to be the cause of the accident, typically you won’t be responsible for paying the deductible. It takes a significant amount of time for the fault to be designated during which the car will need to stay in disrepair. You have the option of going ahead and filing with your carrier even if you weren’t at fault in order to make things go faster. If you are found not to be the cause after having paid the deductible and having the car repaired, you’ll need to make an attempt to reclaim your deductible. There are a few things that can transpire:
- The carrier may opt to take action against the driver at fault’s insurance carrier which is known as subrogation. If they are successful in recovering money from the other company, they will need to reimburse the deductible back to you.
- If your carrier is unsuccessful in recovering funds, you still have the potential of getting your money returned by taking the other driver to court in order to have your deductible reimbursed to you. This would go through small claims court.
Average Auto Insurance Deductibles
As opposed to healthcare deductibles, auto insurance deductibles are not something you can meet annually. You need to be prepared to pay a deductible each time you file for a claim. If you were to increase a $500 deductible up to $1,000, you would see your monthly rates go down incredibly. This means that you have to be able to pay that $1,000 in full out-of-pocket if you find yourself in an accident.
A $500 deductible is an average deductible amount for most auto insurance policyholders which equals out to a monthly rate of approximately $129. If your car repairs total less than the $500 deductible, you should not file an insurance claim. These damages should be paid for by you out-of-pocket as should any that are close to the deductible amount. Insurance carriers frown on policyholders filing claims for minor accidents with vehicles in need of ‘small repairs’. This would make a good case for them to raise your insurance premiums.
Choosing Your Deductible
When you choose the amount you want to pay for your deductible, you should be mindful of several questions:
- How much cash is available to you? If you have a good savings account, you should go with a higher deductible to save your monthly expenses. The lower deductible is going to save you a large one-time payment but will cost more each month. You’ll need to weigh the options.
- How likely is it you’ll file a claim? You’ll want a lower deductible if you’re an accident-prone driver. If your record is clean and you’re not anticipating filing claims much, a higher deductible should be the way you go.
- What is the car worth? If you have a low-value car, a high deductible is not necessary as the value of the car is likely going to be close to what you’ll need to pay out-of-pocket.
Choose a deductible based on what you will be comfortable paying out all at one time if you have major damages to your car due to a significant accident.