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Auto Insurance Deductibles Explained

When looking at car insurance policies, the deductible is one of the most important features to consider. Essentially, a deductible is the amount the policyholder will pay when an insured loss occurs. If an insured car sustains damage covered by the policy that is worth a certain amount, the owner will pay the deductible and the insurer will cover the rest of the cost.

For example, if a car insurance policy has a deductible of $500, and the vehicle takes $7,000 worth of damage, the owner would pay $500 and the insurer would cover the other $6,500. For damages worth $500 or less, the insurer would not contribute to the repair costs. Deductibles vary between policies and insurers.

Deductible Amounts

Deductibles are frequently a specific dollar amount, but that is not always the case. They may also be calculated as a percentage of the damages, which changes the calculations. For relatively small accidents, a percentage might mean paying less than a fixed deductible. As the expense of the accident increases, however, the deductible will increase at the same pace, which may mean paying more in serious cases.

If a policy stipulated a 10 percent deductible and a car took damages worth $7,000, then the owner would have to pay $700 while the insurer paid $6,300. If damages were only $400, however, the insured would pay only $40. Which is the better option can be difficult to determine.

Deductibles and Premiums

Higher insurance deductibles are often featured in policies with lower premiums. This allows insurance providers to remain profitable and stay in business, but also presents consumers with a choice. Paying higher premiums on a regular basis will likely mean less of a financial burden if an accident occurs, whereas a higher deductible will mean less money regularly spent to maintain a policy.

This means that if someone were to avoid car accidents and collisions completely, the high-deductible policy would be ideal, because premiums are lower. Since accidents are by definition not entirely under the driver’s control, however, assuming that they will not occur may be unwise.

Factors Influencing Deductibles

Car insurance is regulated by state governments, which may have laws restricting deductible amounts. In general, a range of deductibles will be available to consumers. One important exception to deductibles is liability claims.

Typically, according to the Insurance Information Institute, deductibles apply to collision and comprehensive coverage but not liability. Coverage for accidents involving uninsured and underinsured motorists may also have no deductible.