What is an Auto Insurance Deductible?
An “auto insurance deductible” is the amount of money you are responsible for paying in the event of a physical damage claim on your vehicle. The insurance company pays for the cost greater than the deductible to repair your car. If the total cost to repair the damage to your car is less than the deductible, you are responsible for paying for all the repair costs.
Deductibles are only paid for physical damage claims for your vehicle, not liability claims. So if you are found liable (at fault) for damage to another person’s car or injury to another person in an accident, you DO NOT have to pay a deductible.
There are several deductible amounts you can choose when selecting an insurance policy. The amount generally ranges between $250 and $1,000. Generally, a higher deductible will lower your insurance rate. You should choose the highest deductible you can afford. Keep in mind that the deductible is paid each time a separate claim is filed. If you have five claims for damage to your car in one year, you would be responsible for paying five deductibles.
Example 1: Rick has a $500 deductible for the physical damage coverage for his car. Rick crashes his car into a neighbor’s mailbox causing $3,000 in damage to his car. Rick would be responsible for paying the first $500 to repair his car. Rick’s insurance company would pay the additional $2,500. It’s important to note that the cost to repair the neighbor’s mailbox would be covered by Rick’s liability coverage.
Example 2: Ray has a $250 deductible for the physical damage coverage for his car. Ray accidentally backs into his neighbor’s mailbox at a slow rate of speed, causing only $100 damage to his car and no damage to the neighbor’s mailbox. Since Ray’s deductible is $250, he is responsible for all the repair costs associated with the accident. His insurance company would only pay for damage in excess of $250.
Remember, the number of claims you file is held against you in the form of additional cost for insurance in the future. Also, insurers may sometimes choose to non-renew your policy after the initial policy term is up based on your previous filing claims. Circumstances can vary greatly, but it is a good idea to pay for all small damages to your vehicle with your own money.
Depending on your financial situation, it probably isn’t a good idea to file a $1,000 claim to fix your dinged bumper regardless of how low your deductible is. If you have a $500 deductible, you would save $500 up front, but may loose out on a lot of money in the future by paying higher insurance rates as a result of filing claims (and costing your insurer money).
