What Is A Deductible?
A car insurance deductible is the amount of money you have to pay toward repairs before your insurance covers the rest. When a disaster strikes your home or you have a car accident, the amount of the deductible is subtracted, or “deducted,” from your claim payment. When you purchase an insurance policy, you determine how much you are willing to pay out of your own pocket in the event of a loss. That’s your deductible. The higher your deductible, the greater the level of risk you are willing to accept. Deductibles are the way in which a risk is shared between you, the policyholder, and your insurer. Generally speaking, the larger the deductible, the less you pay in premiums for an insurance policy.
How Do Deductibles Work?
Let’s say that when you purchased your policy, you selected a $500 deductible. Now, you are involved in a car accident, and it’s going to cost $2,500 to repair your car. You are responsible for the first $500 in damage repairs, and the insurance company will pay the remaining $2,000. In other words, when you receive your payment check, $500 will have been deducted from it.
One way to save money on a homeowners or auto insurance policy is to raise the deductible so, if you're shopping for insurance, ask about the options for deductibles when comparing policies.
Increasing the dollar deductible from $200 to $500 on your auto insurance can reduce collision and comprehensive coverage premium costs. Going to a $1,000 deductible may save you even more.
One important thing to remember: If you are in a car accident and you are not at fault, you will still pay the deductible for the damages sustained to your vehicle. But, if the party at fault is insured, his or her insurance company may reimburse you the amount you paid for your deductible.