Dissecting Your Deductible
Auto insurance is something that you know you have to have, and you know that it covers you financially just in case you’re involved in an accident or your car is stolen. But do you really understand the different aspects of your car insurance policy? To avoid overwhelming you with a plethora of information, this article is just going to focus on one thing: your deductible. When you shop and compare car insurance quotes online, knowing what a deductible is and how it affects your insurance rate will help you better understand what you’re really going to pay.
What is an Auto Insurance Deductible?
Basically, your deductible is the amount of money you have to pay before your insurance coverage will kick in. This occurs in the event of an accident, vandalism, theft, or other forms of damage to your vehicle. For example, let’s say your policy has a $1,000 deductible. If you get in an accident that you’re responsible for and the damages to your vehicle add up to be $3,800, you will have to pay $1,000, and your insurance company will cover the other $2,800.
So, the next time you’re clicking through an auto insurance quote comparison online and you see a policy with a $200 monthly rate and a $1,000 deductible, know that in addition to the monthly payments, you will have to pay $1,000 out of your pocket to cover any damages in the event of an accident or anything thing else that causes damage to your vehicle.
How Does Your Deductible Affect Your Rate?
Many factors are taken into consideration when insurance providers are determining what your rate will be, such as your driving history, the make and model of your vehicle, and your age. Your deductible is another thing that will directly affect your rate. The higher your deductible is, the lower your rate will be, and vice versa. The reason for this is because the more you are willing to pay for your rate, the more your insurance provider is willing to pay in the event of an accident, theft, or vandalism. So, the question is, would you rather pay more per month or more to cover your damages in the event of a collision?
How to Decide on a Deductible Amount
When deciding on a deductible, the main thing you have to consider is when you will be able to pay more money — on a month-to-month basis, or when something happens to your vehicle. Many people choose to have a large deductible because they want to have lower monthly payments. If you are considering this, make sure you are going to have enough money to pay your high deductible set aside at all times because you never know when you’re going to have to pony up the cash. So, if you chose to have a $5,000 deductible to keep your monthly payments down, and you get in a wreck, you need to be able to pay $5,000 up front.
Likewise, if you want to keep your deductible low because you don’t want to get hit with a surprise $5,000 bill, you need to make sure you’re able to make the higher monthly payments that go along with a low deductible. Having to only pay $250 out of your pocket when you’re involved in an accident seems appealing, but know that you’re going to have higher monthly rates to pay.
What it really comes down to is how you want to budget your insurance costs. Some people prefer to pay more per month because they know they aren’t disciplined enough to save and maintain a large amount of money to cover a high deductible. Others are good at saving and setting aside money, so they choose to have a high deductible and low monthly payments. Of course, there are also those that prefer to gamble, choosing a high deductible — even though they know they won’t be able to pay it — in hopes that they won’t be involved in an accident and that nothing will happen to their vehicle.
In addition, keep in mind that some insurance providers will offer you car insurance quotes that only show you what the monthly rates are and not what your deductible will be, hoping that you will simply think that the low rate is a good deal and not consider anything else. Be wary of this whenever you get a quote for car insurance online or in person.