What is a good deductible for auto insurance?
To lower your auto insurance costs, increase your deductible. Raising your comprehensive deductible from $200 to $500 may save you 30 percent.
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UPDATED: May 26, 2022
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- There are many different types of coverage available on a car insurance policy
- In general, comprehensive and collision are the types that will have deductibles
- A deductible is what you are responsible for paying when you file a claim
- A good deductible for one driver may not be a good one for another driver as this will depend on the individual driver’s comfort level and financial situation
- Drivers who select a higher deductible should ensure that they have the means to pay it, if and when the time comes
If you have never had to purchase your own auto insurance before or are simply unfamiliar with the ins and outs of auto coverage, you may have several questions, including what a good deductible is.
Mandated Auto Insurance
If you drive a vehicle on public roads, auto insurance is mandatory with very few exceptions. This legal requirement helps financially protect all drivers and passengers on the roadways.
Not securing at least the minimum amount of required car insurance in your state can lead to severe and long-lasting consequences such as:
- Suspension of your car registration
- Suspension of your driver’s license
- Community service
- Civil lawsuits if you get into an accident
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Auto Insurance Basics
It is important for all drivers on the road to have a basic understanding of their auto policy so they know what all is covered in the event of an accident or another type of loss.
Being an informed consumer can help you make the best choices for your situation when it comes to your auto policy. It can also help you better utilize your car insurance coverage when and if you need to.
An auto insurance policy consists of several different coverage types each designed for a specific set of circumstances:
Liability coverage is for damages to others that are caused by you.
- Property damage liability pays for damages you cause to other’s property such as their car, motorcycle, or even a building.
- Bodily injury liability pays for physical damages you cause to others such as hospital visits, ambulance, or physical therapy bills.
Liability is the basic requirement when it comes to legally mandated insurance. However, it is important for drivers to understand that liability only covers damages to other people and not damages you experience.
Despite the fact that car insurance is a legal requirement, some drivers fail to meet this requirement. Unfortunately, it can affect more people than just the uninsured drivers.
If you are in an accident caused by a driver who does not have insurance or are a hit-and-run victim, you can rely on your uninsured motorist coverage to help compensate you.
If an accident was caused by a driver who has only small amounts of insurance coverage, underinsured motorist coverage will pick up the bill where their insurance leaves off. In some states, this type of coverage is a requirement just like liability insurance.
This type of auto insurance coverage, also referred to as med pay or personal injury protection (PIP) is designed to help pay for your own:
- Medical bills
- Lost wages
- Any help you may need around the house such as housecleaning or babysitting as a result of an accident
Med pay is legally required in some states.
Anytime you file a claim because your vehicle has been damaged by colliding with another object, be it a car, a light pole, a motorcycle, or a house it will fall under your collision insurance.
Collision coverage is an optional coverage type, can be purchased in different amounts of coverage, and will come with a deductible that you select.
On the other hand, comprehensive coverage is relied upon if a vehicle is vandalized, stolen, or otherwise damaged by something like a fire, flood, or natural disaster. Comprehensive also covers damage from hitting wildlife.
Like collision, this coverage also comes in different amounts and you can choose your deductible.
What is a deductible?
Deductibles are the portion that you must pay when you file a claim. Generally, deductibles are for collision and comprehensive claims.
For instance, if you hit a deer and file a claim on the comprehensive portion of your car insurance policy, you will be responsible for paying your comprehensive deductible amount before the insurance company kicks in their portion.
If your comprehensive claim was for $5,000 and your deductible is $500, you will pay your deductible and then your insurance carrier will pay their $4500 portion of the claim.
Unfortunately, there is no straight-forward answer to this question. What may be a good deductible for your friend may not be a good one for you. This is because everyone has different financial needs and circumstances.
This question boils down to if you would rather pay a lower premium and a higher deductible if you file a claim or if you would rather pay higher premiums and have a lower deductible when a claim is filed.
In general, the lower the deductible the higher your premium will be.
Studies show that on average, each driver files a collision claim about once every three years, whereas, comprehensive claims are filed by individual drivers about every decade.
Some drivers choose to take advantage of this information and increase the deductible for their comprehensive coverage. In fact, by raising your comprehensive deductible from $200 to $500, you may save about 30 percent on your premium each year.
If you have the financial reserves to rely on if you need to pay a higher deductible, it may be a smart financial move to raise your deductibles on both your comprehensive and collision coverages.
However, for some drivers, it can be difficult to come up with even a couple hundred extra dollars to pay an unexpected expense.