To a new driver, auto insurance might seem pretty straightforward. You pay a monthly fee to your insurer, and he’ll pay any damage that your car might sustain… right? Well, this new driver probably hasn’t even waded through the vast ocean of words in an auto insurance contract. Any seasoned driver would know that besides premiums, there are many additional conditions to take note of – which particular workshop you must repair your vehicle at, which coverage covers what, etc. … But most importantly, you’ll have to understand this term: Deductibles.
What are auto insurance deductibles?
Auto insurance deductibles are the amount that you have agreed to fork out yourself when you are involved in an accident. In such unfortunate circumstances, you will have to pay this amount first before you can claim the insured amount from the insurance company.
For example, in your auto insurance policy, you have agreed that you will pay $400 for any damages to your vehicle. In an accident that costs you $4000, you will have to pay the $400 before your insurer pays the remaining $3600.
In addition, the amount of deductibles you pay will directly affect the amount of premium that you will have to pay. As such, it is important to determine how much deductible you are willing to pay before deciding on an auto insurance plan.
Do I have to pay deductibles for all the coverage in my auto insurance plan?
You will only have to pay deductibles for comprehensive and collision coverage.
Comprehensive coverage will cover all damages from arson, theft, animal collision and vandalism to your vehicle, while collision coverage will cover damages that arise from collision with vehicles or properties.
How do I decide on a higher or lower auto insurance deductible?
It will eventually come down to the point where you’ll have to decide how much of a deductible you are willing to take up for your insurance scheme. So, how do you actually decide the amount of auto insurance deductible for your auto insurance policy? Here are some pointers to take note:
Probability of an accident
Of course, you’ll never be able to predict when you’ll get into an accident. However, you can deduce whether you have a higher chance of being in an accident. If you’re living in a city area, where there are a lot of vehicles, chances are that you’ll get into an accident more often than someone who’s living out in the suburbs. As such, you should be getting lower deductibles, in view that you’ll probably be asking your insurer for payouts more often than the drivers in the suburbs. This will save quite a far sum spent on your premiums.
Determine your finances
Before you choose the amount of deductibles you want, determine how much you are capable of paying before you settle on the amount of deductible you will pay. It is common sense: do not pick up a deductible amount that is more than what you are capable of paying for! The reduced premium will not do you any good when you’re unable to shoulder the deductible yourself, and end up reaching into your savings to fork out cash for the outstanding deductible payable.
Analyze the amount you will pay for your auto insurance plan
By discussing with your insurance agent, you can get a brief idea of the amount you will save in the long run with a higher deductible. Work out the best-fit plan for you depending on the amount of times you use your car – as with the first point, if you use your car infrequently, you should get an auto insurance plan with a higher deductible, as the probability of you getting into an accident is quite low.
Maximum deductible allowed
If your car is funded by an auto loan or if your car is leased, you must check if your auto loan provider or lien holder of the lease about the maximum deductible amount allowed. There are instances where the maximum deductible for your auto insurance plan is much lower than what you would like to have included. Always ask the authorities in question, and read through the terms and conditions before making a decision.
Auto insurance is important, even mandatory in some states. As such, it will do you good to understand the various terms and concepts in auto insurance. Deductibles are important to know, because the amount you choose will directly impact your finances – you’ll be paying a higher or lower premium depending on the amount of auto insurance deductibles you choose. Always think through your options before making the decision.