Your Car Insurance and Policy Deductible

Car insurance rates are typically lower if you agree to pay a higher deductible. The reason this helps lower your insurance premiums is it allows the insurance company to take less of a risk. The more you are willing to pay out of pocket for a claim, the less of an impact the claim will have on the insurance company. However, it is important to take your needs into account and weigh the pros and cons of increasing your car insurance deductible to save money on your premium.

Definition

The definition of policy deductible is fairly clear. It is an amount paid by the insured before the policy begins to make payments. A deductible is your out-of-pocket payment for each incident, up front, before anything is handled by the car insurance company. Unlike health insurance, each payment does not go towards a deductible to help eliminate it throughout the policy year. Instead, each issue must meet the deductible before the policy will pay anything towards the claim, in most cases. This is due to the idea that car insurance is preferably used much less frequently than health insurance and hopefully never used at all in a policy year. To look at an example, suppose you have a deductible of $500. Now imagine you are involved in a small accident which results in $300 in damage to your vehicle (like cracked mirrors). You would not have paid out $500; therefore, you do not have a claim to enter to your insurance company for your vehicle. You as the insured, would just pay the $300 on your own, and get the mirrors fixed. However, imagine the damage to your vehicle is $2,000. Now, you will pay $500 and your insurance will pay the remaining $1,500.

Pros and Cons

There are several pros and cons when it comes to policy deductibles. First, as a Pro, the higher the deductible, the lower the amount the car insurance company must pay out in the event of an accident. Therefore, as the insured, you receive a lower premium for mitigating the insurance company’s risk back to yourself. Another Pro is among other things, having any policy deductible will entice the insured to be a better, more conscientious driver. For starters, the insured will not want to pay a deductible for each little “fender-bender” accident they may have. Furthermore, the insured does not want to see his or her insurance rates rise as a result of excessive accidents.

However, for every Pro, there is an equal Con. While the policy may be less expensive for you since the risks to the insurance company are mitigated, should you have a claim, your auto policy could still increase in premium as a result. Therefore, if your car is involved in an at-fault accident or if it is damaged by an uninsured motorist, you will have to pay out of pocket (Your deductible) first before your insurance company will make repairs to your vehicle. This means that if you have a $5,000 deductible and the damage costs $4,000 to repair, you will not have a legitimate claim to submit and the $4,000 will have to come from your own pocket. One of the purposes of insurance is to provide a little boost of confidence for you, and your vehicle. However, maintaining a higher policy deductible on an auto is not always the smart option, and could come back to bite you in the event of an accident. So if you are thinking about carrying higher policy deductibles, speak with one of the licensed agents at Protective Agency Insurance to get a second option on that first.

To learn even more about deductibles for car insurance and whether your current deductible requires adjusting, contact our team at ProtectiveAgency.com or call (877) 739-9367. Our licensed insurance agents will be happy to answer any questions you have.