What Is Auto Insurance Deductible, And How Does It Work

You’ve probably heard the term “auto insurance deductible” while discussing policy with your insurance provider, but you may not be entirely sure what it is or how it works.

our auto insurance deductible is the amount you have to pay toward a covered claim before your insurance company picks up the tab.

How Does An Auto Insurance Deductible Work?

Imagine this: you get into a car accident, and it’s your fault. You have comprehensive collision coverage with a $500 deductible. That means you would have to pay the first $500 of damages, and your insurance company would cover the rest up to your policy limits. If the damages totaled $1,000, you would only be on the hook for $500, and your insurance provider would pay the remaining $500. However, if the damages totaled $4,000, you would still only be responsible for paying $500 since that’s your coverage limit. Anything above that, and you would have to pay out-of-pocket.

How Much Should My Auto Insurance Deductible Be?

The answer to this question depends on a few factors, such as your financial situation and driving habits. Ultimately, it’s up to you to decide how much risk you’re comfortable taking on.

Make sure that whatever amount you choose, you can comfortably afford to pay it if you have an accident.

  • If you generally drive carefully and don’t get into many accidents, then opt for a higher deductible since you won’t use your coverage very often anyway.
  • If you have a history of accidents or tend to drive aggressively, go with a lower deductible so that you don’t have to pay as much if/when you need to make a claim.
A car damaged during an accident

Why Do Insurance Plans Have Deductibles?

Deductibles help insurance providers hold the policyholder accountable for their actions. But there are two main reasons why deductible is an integral part of your insurance.

· Moral Hazard

Deductibles help insurance agencies navigate the behavioral risks that a policyholder might present. If a person hasn’t entered the contract in good faith, then moral hazard exists automatically. They might engage in reckless behavior because they know they won’t be held liable for any financial loss.

For example, if reckless drivers get stranded somewhere, they might leave their vehicle unattended, or they might have the incentive they can drive without caring for the life of others.

A deductible will prevent any of that from happening because they’ll know that they’ll have to pay their share if they get into an accident. Ultimately, a deductible will help align the interest of both parties involved.

· Financial Stability

A deductible also helps maintain financial stability on the insurance provider’s part. If insurance agents included no deductible in the insurance plans, there would be an overwhelming number of insurance claims that every customer would file. And the insurance provider would be at a significant loss if that were the case.

An insurance plan will still protect you against a catastrophic loss, but the deductible will help reduce the severity of the claim.

Increasing Deductible Can Help Save Money

Raising your deductible while buying auto insurance is an excellent way to save money. This is why when comparing policies from various insurance providers, you also need to ask questions about deductible options.

If you increase the deductible on your auto insurance policy from $250 to $500, you can save on comprehensive and collision coverage. These coverage types even become optional once you’ve raised your deductible.

However, you need to remember that you’ll be responsible for paying this amount in case of loss or damage. So choose a deductible that you’ll be comfortable with while paying.

Two cars colliding at a stop sign

What Is The Average Deductible Cost?

Now that you’re familiar with the concept of a deductible, it’s time to look at the average deductible cost. Simply put, a deductible is the amount of money you must pay out-of-pocket before your insurance starts to cover the costs of a covered incident.

For example, if you have a $300 deductible and require $2,500 worth of covered repairs, you will pay the first $300, and your insurance will cover the remaining $2,200.

Deductibles can vary widely in amount, but most people can expect to pay between $250 and $1,000 for their deductible. Of course, the amount of your deductible will also affect your premium, so it is important to strike a balance between affordability and protection.

Which Auto Insurance Coverage Types Have Deductibles?

Like there are different kinds of coverage, the deductibles differ based on individual requirements. In some cases, there are no deductibles available as well. Let’s take a look at a few of them.

1. Collision Coverage

Collision coverage is one of the most common types of auto insurance coverage, and it typically has a deductible and is the highest. This type of coverage pays for damage to your car caused by a collision with another vehicle or object. The deductible amount is typically based on the value of your vehicle.

You won’t have to pay the deductible for this collision coverage if another driver hits your car and damages it significantly. In that case, the other driver and their insurance provider will have to take care of the damage done to your car.

Broken windshield of a car after a car accident

2. Comprehensive Coverage

Comprehensive coverage is another common auto insurance coverage with a deductible. Still, it’s usually less than the deductible you’ll have to pay if you get into an accident.

This type of coverage helps pay for damage to your vehicle caused by events such as theft, fire, or weather damage.

3. Liability Coverage

This type of auto insurance coverage doesn’t have a deductible. This pays for damage to other people or property caused by your vehicle. Liability coverage is required in most states, and the coverage you require varies by state.

4. Medical Payments Coverage

This is another type of auto insurance coverage that does not have a deductible. This type of coverage helps pay for medical expenses that you or your passengers incur due to an accident.

5. Uninsured/Underinsured Motorist  And Personal Injury Protection Coverage

When you get into an accident where the other driver can’t pay for the damage, that is when uninsured/underinsured motorist coverage protects you and pays for the damage done by the other driver.

Personal Injury Protection (PIP) is when your insurance provider pays for all the passenger’s and driver’s medical expenses in case of an accident. Most auto insurance policies don’t include deductibles for these two types of coverage.

Get In Touch With Trained Experts In Springfield

If you’re looking for auto insurance, reach out to our qualified insurance agents at Western Mass Auto Insurance.

We offer all sorts of insurance plans, including home, auto, apartment, and commercial vehicle insurance.

If you’re looking for additional insurance information, you can look at our blog here. You can also download our app now!

Request a free quote from us today!