What is a Deductible in Auto Insurance?
A deductible in auto insurance is the amount of money that the policyholder must pay out-of-pocket before the insurance company will cover the remaining costs of a covered claim. It serves as a form of risk-sharing between the insurer and the insured and is designed to discourage small claims.
How Deductibles Work
When you file a claim for an accident or damage to your vehicle, you will need to pay the deductible amount specified in your policy. For instance, if your deductible is $500 and the total cost of the damage is $2,000, you would pay the first $500, and your insurance would cover the remaining $1,500.
Types of Deductibles
- Collision Deductible: This applies when your vehicle is damaged in an accident, regardless of fault.
- Comprehensive Deductible: This applies to non-collision-related incidents such as theft, vandalism, or natural disasters.
Choosing the Right Deductible
When purchasing auto insurance, you can typically choose your deductible amount. A higher deductible usually means lower monthly premiums but increases your out-of-pocket expenses in the event of a claim. Conversely, a lower deductible results in higher premiums but less financial burden when filing a claim. It's essential to evaluate your financial situation and driving habits to select the right balance.