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The Importance of Understanding Deductibles in Car Insurance

woman on living room with calculator looking at car papers

When thinking about your car insurance, you might consider premium costs and different types of coverage. But have you ever considered your deductible?

Deductibles are probably something you don’t give much thought to until you need to use them. That’s why we’ve put together this guide to help you understand what a deductible is as well as when you might need to pay it.

The Importance of Understanding Deductibles in Car Insurance

Car insurance is a necessary expense for any driver on the road. It provides financial protection in the event of an accident or other unexpected incidents that can cause damage to a vehicle. One key factor that drivers need to understand when purchasing car insurance is how the deductible works. A deductible is the amount of money that a driver must pay out of pocket before their insurance coverage kicks in. The amount of the deductible can have a significant impact on the overall cost of insurance and the amount of coverage that is provided. 

Understanding how car insurance deductibles work can help drivers make informed decisions about their insurance coverage and ensure that they are adequately protected in the event of an accident. Freeway Insurance is one of the leading providers of car insurance in the United States, offering a range of insurance options to meet the needs of drivers of all types. As a trusted and reliable provider of insurance, Freeway Insurance is dedicated to helping drivers understand the ins and outs of car insurance, including the importance of understanding deductibles.

Definition of car insurance deductible

A car insurance deductible is the amount of money that a policyholder is responsible for paying out-of-pocket before their insurance coverage kicks in. This deductible amount is agreed upon at the time of policy purchase and can range from a few hundred dollars to thousands of dollars depending on the policy and the insurer. For example, if a policyholder has a deductible of $500 and they get into an accident that causes $2,000 in damages to their car, the policyholder would be responsible for paying the first $500, and their insurance company would cover the remaining $1,500. 

Deductibles are a way for policyholders to share the risk of financial loss with their insurance company, and they can affect the cost of car insurance premiums. Generally, higher deductibles result in lower premiums, while lower deductibles result in higher premiums. 

Car Insurance Deductible Basics

Basically, it’s the upfront cost you pay to fix your car. When you’re in an accident and want to get the damage repaired, you’ll just pay a set amount instead of paying the whole bill. This amount doesn’t change, whether the total damage is $800 or $2,000.

Let’s use an example to illustrate. Let’s say you get into an accident and have $1,000 of damage to your car. You’ll pay your $250 deductible, and the insurance company will cover the $750 in remaining repair bills.

You might be thinking — that sounds a lot like my health insurance. While they are similar, car insurance deductibles are different from health insurance ones. The principle is the same (an upfront cost you pay for each claim), but car insurance doesn’t have a limit like health insurance. This means you’ll need to pay the deductible for every claim, regardless of how many claims you make or how much you spend.

Also, keep in mind that deductibles pertain only to the damage to your car, meaning they only apply to things like collision and comprehensive insurance. You don’t need to pay a deductible for liability insurance.

How Can You Find Your Deductible?

If you already have car insurance but aren’t sure what deductible you have, it’s easy to find out. Your car insurance should have given you a policy form that includes a declarations page. This page has all the pertinent info you need about your policy.

In this document, you’ll find things like your policy period, coverage limits, and premium cost. But most importantly, you’ll find your deductible. It’s usually listed in its own section where you can see the amount clearly.

Typically, you’ll have separate deductibles for both collision and comprehensive coverage. Collision deductibles are the ones people usually mean when they talk about a deductible, as this is what you’ll pay if you’re in an accident. Comprehensive deductibles are just as important, but they’re typically paid out for damage from acts of god, like weather or hitting a deer.

How to Choose the Right Deductible for You

When putting together your car insurance coverage, you have a say in how much your deductible will be. The number you choose can play a big role in the price of your monthly premium.

Generally, when you choose a higher deductible, your monthly car insurance premiums will be lower. If you think your chances of getting in an accident are low, this might be a good approach. That said, if you do get into an accident, you need to make sure you have enough saved up for the deductible.

Another drawback of this approach? If your deductible is too high, it might not even make sense to file a claim with your insurance. For example, if you have a $1,000 deductible and your estimate for the damage is only $800, you’ll be paying more than you need to.

There’s also the flip side of a lower deductible, but this will make your monthly premiums much more expensive. However, if you have a high-value car where you know repairs will be costly, it might make sense to take this approach instead.

Also, if you have a penchant for getting into accidents, a lower deductible might be better for your multiple claims. That way, you’ll also be able to have smaller problems covered as well that you might normally skip over with a higher deductible.

With all of these pros and cons in mind, most people play it safe by going in the middle. The average car insurance collision deductible is $500, which is typically the best mix of low premium and low deductible costs. That way, you’ll have adequate coverage in an accident without paying a ton of money on a regular basis.

The best way to calculate your deductible? Run the numbers with the different coverage levels when building your insurance quote to see how they affect the price. Once you better understand how things will play out for you financially, think about the following three questions to really nail down what deductible would work best:

  • What’s the likelihood you’ll file a claim?
  • What can you afford to pay each month?
  • How much do you have in savings?

Times When You’ll Need to Pay Your Deductible

Paying your deductible is common in a lot of situations when you need to have your car repaired. Here’s a look at the times you might need to pay it.

  • You’re at fault for an accident. It can happen even to the safest drivers. If you’re at fault for an accident and you want to repair the damage to your car, your collision deductible will apply.
  • Your vehicle suffers damage from an Act of God. Hitting another car isn’t the only way your vehicle can be damaged. An act of god can also take place. This generally includes things out of your control like a hailstorm, a tree falling on your car, or hitting an animal in the road.
  • The at-fault driver’s policy has low coverage limits. Let’s say you’re in an accident that you didn’t cause. The other driver’s insurance should cover your damages, but if they have a low coverage policy it may not be enough to handle all of the repairs. If that’s the case and you have collision coverage, you may need to pay your deductible if you want to have everything fixed back to the way it was.
  • The at-fault driver doesn’t have insurance. It’s illegal, but sometimes drivers don’t carry insurance. If you’re unfortunate enough to be hit by someone like this, paying for the damages to your car falls on your shoulders. That said, you may be able to recoup your costs in court, but since this is a hassle, it might not be worth it.

Times When You Won’t Need to Pay Your Deductible

You don’t always have to pay a deductible! Here are a few scenarios where a deductible won’t apply in an accident.

  • You’re not at fault for the accident. We covered this a bit above, but if another driver hits you, their insurance will be the one paying for your repair bills. So you won’t have to pay your insurance company a deductible. The only way you’d need to pay in this instance is if they don’t have enough coverage or they don’t have insurance at all.
  • Another driver is filing against your liability coverage. If you cause an accident and the other driver files a claim, you don’t have to pay your deductible. Your insurance will pay for their claim automatically.
  • You have free glass repairs. Some insurance policies do include deductible-free add-ons. One common area that often doesn’t require a deductible is glass repairs.
  • You chose a no-deductible plan. Some states allow companies to provide $0 deductible car insurance. This means you won’t pay anything when you’re in an accident — but your premiums will be much higher than average.

The Car Insurance Deductible Timeline

Let’s take a look at how exactly a deductible works in action. For this scenario, assume that you’ve been in an accident for which you weren’t at fault and you need to use your collision insurance since the at-fault driver is uninsured. A car hit you running a red light, and now you have hefty body damage that needs to be repaired.

  1. Take your car to a mechanic. The first step is to get your vehicle to the shop. Ideally, it would be best to choose an insurance-approved mechanic because it means you won’t have to submit the estimate for approval before the company will pay.
  2. Pay the deductible. If everything looks good and you want to continue with your claim, it’s time to pay the deductible. If you’ve chosen an insurance-approved mechanic, you should be able to pay your deductible at that time. If you haven’t, your insurance company will take the deductible right from your payout.
  3. Pick up your fixed car. Once your car is done, all you need to do is pick it up! For an insurance-approved mechanic, payment will happen behind the scenes so you don’t have to do anything else. If you went to your own mechanic, you’d need to give them a check from the insurance company at this time. Either way, you won’t have any more bills.

Car Insurance You Can Trust From Freeway Insurance

When it comes to car insurance, it’s important to find a company you can trust. Freeway Insurance offers reliable coverage options that are designed to fit your individual needs and budget. With over 30 years of experience in the insurance industry, they’ve built a reputation for providing quality service and competitive pricing. They offer a wide range of coverage options, including liability, collision, and comprehensive coverage, as well as additional coverage options like roadside assistance and rental reimbursement. 

Whether you’re looking for basic coverage or more comprehensive protection, Freeway Insurance has a policy that can meet your needs. Plus, with convenient online tools and 24/7 customer service, you can easily manage your policy and get the help you need whenever you need it. Trust us to provide the coverage and support you need to hit the road with confidence.

You’ll find cheap car insurance no matter the deductible you choose. Get your free quote today to see just how much you can save!

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