What is a car insurance deductible?

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In a nutshell...
  • Many companies allow you to trim your insurance premiums by raising your deductible beyond a minimum limit
  • In some states, deductibles are regulated by law, as well, and your insurance company will have to follow these guidelines
  • There are some deductibles which car insurance companies will not allow you to raise

You may hear the term “car insurance deductible” referred to as you shop for car insurance. What does this term mean? Does every car insurance policy have a deductible?

How much control do you have over your deductible, and how does it affect the cost of your car insurance?

To answer these questions, you must understand how a car insurance deductible works and how it can benefit you to manage yours wisely. Enter your zip code above to get FREE car insurance quotes today!

What is a car insurance deductible?

Simply put, a deductible is an amount that is “deducted” from what car insurance companies will pay if you file a claim.

This amount must be paid by you first before the insurance company will spend the remainder of your medical or repair bills.

The amount is set when you purchase your policy, so you will know what you owe before you file a claim.

Unlike health insurance, car insurance does not pay at a percentage over the deductible; once you satisfy the deductible, your insurance company pays the remainder of the costs up to the limits of your policy.

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How much is a car insurance deductible?

When you take out your policy, you may be offered a choice of how much your deductible will be. Many companies allow you to trim your insurance premiums by raising your deductible beyond a minimum limit.

Liability deductible limits are usually flexible. A standard baseline amount is $250, but this will result in the highest premium. Many people set their deductible at $500, and some choose a $1000 deductible.

This is because comprehensive and collision claims typically cost the insurance company significantly, and a high deductible discourages people from filing small claims.

If the damage to your car from backing into a pole, for example, will cost $500 to repair, and your deductible is set at $500, you would not file the claim under your collision policy, as the company would not pay any money.

Even if the bill came to $750, most people will not file a claim for a mere $250 and risk having their premiums increased or losing their “no accident” discount.

Are all deductibles flexible?

There are some deductibles which car insurance companies will not allow you to raise. Many companies prohibit the raising of uninsured motorist deductibles, for example.

This is because an accident with an uninsured motorist will generally not net you or the insurance company any compensation, and it is best to keep your deductible low so that you can pay your medical bills and repair your vehicle with no trouble.

In some states, deductibles are regulated by law, as well, and your insurance company will have to follow these guidelines.

What is a vanishing deductible?

Some forms of insurance have a “vanishing deductible” option. You set your deductible at a given amount; then, for every year you remain claim-free, your deductible “vanishes” by $100 or more per year.

This option is a good one for a driver with a good record, who makes few claims on the insurer. It is a reward that is earned by good drivers and allows some flexibility about how much your premiums will ultimately be.

Generally speaking, if you are a good driver with few claims on your car insurance, it makes sense to raise your deductible if you have cash available to pay the requisite amount yourself.

On the other hand, if you have limited cash available, it may make more sense to keep your deductibles low so that you are sure of being able to pay your share of any claims which may be filed.

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