Pretty much every aspect of insurance is based on risk, – the risk of loss. Car insurance deductibles are no different. If you are shopping for new car insurance or updating your current policy, one of the most important factors to consider when getting a quote is choosing the deductible amount. It might seem enticing to pick the highest deductible since that often equates to a lower monthly premium, but saving a few bucks in the short term might mean you pay more in the long term. Let’s break down how car insurance deductibles work and walk through how to choose the best car insurance deductible for your lifestyle.
What is a Car Insurance Deductible?
Your car insurance deductible is the amount of money you have to pay if something happens to your car before your insurance kicks in, after a covered event (such as a crash, theft or weather damage). Similar to other types of insurance that have deductibles, your deductible can be thought of your monetary responsibility in the event of an accident or another type of covered vehicle damage. For example, if your car needs $2,000 in repairs and your deductible is $500, you will have to pay $500 and your insurer will cover the remaining $1,500. Unlike other types of insurance deductibles, your car insurance deductible will be applied for each claim you file (health insurance deductibles apply across the calendar year, but your car insurance deductible will be applied for each claim you file). So if you submit two car insurance claims in a year, you will have to pay your deductible both times.
How do Car Insurance Deductibles Work?
Many insurance providers (including Metromile) will take the deductible out of the indemnity payment (the money you receive from a claim), or the deductible will be paid directly to a repair facility if you choose to fix your car. When it comes to car insurance deductibles there are generally two ways you can approach it: either choose a high deductible to get a lower car insurance premium or choose a low deductible to reduce out-of-pocket expenses in the case of an accident.
- What are deductibles based off of?
- When will I have to pay my deductible?
Car insurance deductibles and premiums are structured based on risk. The underlying idea is that if your policy has a high deductible (between $1,000-$2,000) you are less likely to file a claim for repairs, therefore making you less of a risk to your insurance carrier. But if you choose a low deductible (between $100-$500) you are more likely to file a claim for repairs, meaning your premium will likely be higher – because you are more of a risk to the insurance carrier. High deductible plans aren’t right for everyone, neither are low deductible plans. Your lifestyle, driving behaviors, and financial situation are all factors you should take into account when deciding your deductible amount.
When signing up for car insurance you have to make a lot of decisions; how much liability coverage should you get? What about collision coverage? Should you pick a higher or lower deductible? All of these decisions may seem arbitrary now, but when an accident happens the choices you made can be the difference between getting your car fixed and giving your car up.
Car insurance deductibles kick in when you make a claim, and can be payable to either your repair shop or your insurance provider depending on the amount, your plan, and your provider’s general deductible policy. Often times, you’ll pay your deductible directly to your repair shop and your insurance provider will take care of the remaining bill.
But remember, ultimately paying your deductible is up to you. If you would rather not submit a claim, you don’t have to pay your deductible, but you will be responsible for the entire cost of your repair.
How do I Choose the Right Car Insurance Deductible Amount?
So how do you choose the right deductible amount for your needs? If you choose a higher amount, there is less chance that the insurer will have to help pay for the damage, so your monthly premium might be lower. If you choose a lower deductible, your premium might be higher, but that means you will have to spend less money in the event that something happens to your car.
You shouldn’t just choose a high deductible in hopes that you will never have to make a claim. There are always things beyond your control (like vandalism and bad weather), so if something happens and you can’t pay for repairs, that’s bad news. So when thinking about your deductible you should take into account the maximum amount you would feel comfortable paying for anything, without it causing a stress in your life. Budgeting out your financials can really help you understand what you can afford in terms of a deductible. Make sure to take your monthly income, fixed expenses, personal savings and available credit into account.
It is important to note that no matter what deductible amount you choose, you still will only be covered for expenses that your insurance policy covers. If you only have Liability coverage, the only expenses that are covered are the damages to the other driver’s vehicle and bodily injury claims from the other driver or passengers in the event that you are at fault in a car crash. If you have Comprehensive and Collision coverage, which are sold together, then you will also be covered for damages to your own car (Collision), as well as damages caused by non-collision such as theft or natural disaster (Comprehensive). The exact things that are covered vary by the insurance carrier and state, so make sure to check with the carrier to see exactly what is included (Metromile customers can check the policy contract). You can choose the deductible amount for each type of coverage, so if you think you are a safe driver, it might make sense to have a higher Collision deductible (where you can often prevent a crash) versus Comprehensive (where the events are typically out of our control).
Now that you have the information to choose the right deductible amount for your needs, try getting a quick, free quote to see how much you could save with Metromile’s per-mile car insurance offering!