You probably already know how important it is for you to have auto insurance, but have you ever wondered what types you should purchase?
Most people choose either a liability-only policy or full-coverage. If you need full coverage, you’ll have another decision to make – the amount you want for your car insurance deductible.
The amount you select for your deductible affects the costs of your policy and the coverage you have, so you’ll want to choose carefully.
If you’re having trouble understanding how a deductible works or what amount you should select, keep reading this article as it explains everything you need to know to make an informed decision.
The Definition of a Car Insurance Deductible
To begin, you’ll need to understand what is a deductible with auto insurance before you can decide how much to select as the amount.
A deductible with auto insurance works like a deductible works with any insurance coverage. It is the amount of money you pay if you file a claim for damages.
For example, let’s assume you have a $1,000 deductible on your policy. If you cause an accident and end up with $5,000 of damages, you pay the $1,000, and your insurance pays the remaining $4,000.
One fact to understand about deductibles is that you do not have to pay one if you are not at fault for the accident.
If another driver damages your car from a collision he or she caused, you do not pay the deductible. That person’s insurance pays the claim, and he or she is responsible for his or her deductible.
Fault plays a crucial role in car accident settlements. If you are not at fault, you don’t have to pay a deductible or the repairs the car needs. If you are at fault, you pay the deductible if you vehicle has collision coverage.
The Options You Have
As you consider the amount to choose, you should understand that you have options.
The first option is the amount you select. Most insurance companies let you choose almost any dollar amount you want. Common amounts include $100, $500, and $1,000.
What amount would you like to pay if you ever cause an accident and need repairs? If you prefer having a small amount, you could choose $100 as your deductible. If you are willing to pay more, you’re free to choose a higher amount.
The second option is understanding that you can have a different amount for your collision coverage and your comprehensive coverage. If you have both coverage types on your policy, their deductibles do not have to be the same.
The Factors to Consider When Choosing Your Deductible
If you understand what a deductible is and the options you have, you can move on to the factors you should consider when selecting your deductible. Here are some of the critical factors to analyze as you make this decision.
The Amount You Have in an Emergency Fund
Do you have an emergency fund set up at this time? Do you even know what an emergency fund is?
An emergency fund is a separate savings account you have for unexpected expenses. You cannot predict when you may cause a car accident, so if you cause one and have to pay the deductible, you could use your emergency fund to do so.
If you have an emergency fund set up and have plenty of money in it, choosing a higher deductible might work well for you.
Without an emergency fund, you’d likely be better off with a lower amount, as it would be easier to come up with if you need it.
The Value of Your Vehicle
A second factor to consider is the value of your car. When a car is worth a lot of money, it makes more sense to have a higher deductible.
If a car is worth very little, there’s no point in having a high deductible. If you had a high one and caused a collision, the insurance company might not have to pay for any of the repairs.
For example, if you have a $1,000 deductible, here’s how it would work if you caused an accident:
- If your car is worth $2,000, you will pay $1,000, and the insurance company would pay $1,000.
- If your car is worth $15,000, you will pay $1,000, and the insurance company would pay $14,000.
You can see it’s much better to have a high deductible when the car you own is worth a lot of money.
Your Financial Situation
You should also know that your financial situation plays a role in this decision, too. The cost of insuring your car varies by the deductible.
You will pay higher rates for a lower deductible, while you will pay a lower price for a higher one.
How much money do you have available in your budget for auto insurance premiums?
If you don’t have a lot, you might want to save as much as you can on your insurance costs by choosing a lower amount. If you can afford higher premiums, it’s definitely worth paying a higher rate for more coverage.
Your Risk Factors
Finally, you could include your risk factors in this decision. What risks do you have? Is there a high risk you might cause an accident, or is the risk relatively low?
When you feel you have a high-risk level, choosing an amount that is lower is probably the best option for you. If you drive very little and believe your risk is low, choose a higher amount.
Basing your decision on these factors may make it easier for you to decide what amount is right for you.
How to Learn More
The amount you choose for your car insurance deductible is crucial, and it’s always wise to make an informed decision about this amount.
You can learn more about deductibles by reading our blog, or you can contact us for more information.
If you live in Raleigh, Charlotte, Durham, or any nearby city, call us today for a quote or to find the answers to the questions you have.