When you choose your car insurance policy, you’ll likely see that you have a choice of deductibles. In some cases, you will even be able to choose several. Deductibles represent your own obligation to pay for vehicle damage or related losses. Therefore, you need to choose one that you can pay easily, without a significant out-of-pocket loss. Here’s a little more information about increasing your deductibles.
What’s a Car Insurance Deductible
A deductible is the amount provided in your policy that is subtracted, or deducted, from the cost of a covered claim that you file under your policy.
In other words, you pay the deductible amount and your policy covers the remainder of your covered claim.
So, let’s say you have an accident and your car sustains $5,000 in damages, your policy will pay for the repairs under its collision coverage. However, you see that you have a $1,000 deductible on the policy. So, this means that you will pay the $1,000 toward the cost of repairs. The policy will then pay the remaining $4,000, since $5,000 - $1,000 = $4,000.
Balancing Deductibles with Premium amount
Choosing the right deductible amount is important. So, you need to pick one that you can afford, while also ensuring that you are properly protected.
If you raise your deductible amount, your premium amount will go down . That’s because by raising your deductible, you increase the amount you will pay for a covered loss before your insurance policy pays the balance.
You might feel tempted to raise your deductible as high as possible to save on your premium. However, tread carefully. Do not raise your deductible arbitrarily.
By raising your deductible, you agree to pay that amount for the costs of certain repairs, out of your own pocket. Furthermore. If the cost to repair the damage is less than the deductible amount, then you will pay for l the repair yourself. While some policies waive deductibles for certain types of vehicle damage, most body work will have the cost attached.
Therefore, you have to be able to afford the deductibles you choose. If you can only afford to pay a $500 deductible as opposed to a $1,000 deductible, then you should take the $500 option. It is not worth saving a few dollars each month just to have to pay more than you can afford towards repairs of your vehicle if you are in an accident.
To determine the appropriate deductible amount, take a close look at what you have in savings accounts, emergency funds or dedicated household upkeep accounts. Determine what amount you can keep earmarked for your vehicle deductible. When you are able to, you may consider increasing your deductible amount. These are suggestions to consider in making your decision.
LC 2019-327.