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Car insurance is essential for anyone who expects to drive their cars on the road – and what’s the point of having a car that you can’t drive? Required in nearly every state, a car insurance policy gives you the confidence and security of a backup plan if anything bad happens. But how much you pay for your insurance can change depending on your deductible.
How do you lower your car insurance rates deductible to save on your annual car insurance premiums? The best way to get the most out of your deductible is to understand how it works, know the effects of raising or lowering deductibles, learn the tips to get lower auto insurance quotes, and maintain a higher credit score.
What is a car insurance deductible?
Deductibles are an essential part of your auto insurance policy. They determine how long it takes to clear your premiums and how you can benefit from an accident or theft. A deductible is the amount of money you pay out of your pockets towards an insured loss. For example, if something happens to your car, the agreed amount is “deducted” from your claim payment. A deductible is either a specific amount or a percentage of the cost of auto insurance on a policy. It acts as a shared risk between you, the policyholder, and the car insurance companies.
As such, the more deductible you pay, the less the premiums you will pay towards an insurance policy. Each state provides regulations on how deductibles are incorporated into the policy and implemented. This means deductibles vary from national average state to state based on the coverage types.
How deductibles work
Deductibles can be categorized by dollar amount or percentages. A specific amount of money is cut from your total payment when filing a claim for a dollar amount deductible. For example, if you are in a $500 deductible and your insurance policy states you have an insured loss of $10,000, you will receive a claim check for $9,500.
Percentage deductibles are calculated based on the agreed percentage of the insurance value. It mainly applies to homeowners. For example, if your car is insured for $550,000 with a 2% deductible, it means $1,000 would be deducted from every payment claim you make. On the other hand, if you have an insurance loss of $10,000, you will receive $9,000 as payment.
Therefore, liability insurance deductibles apply every time you file a claim. But your deductible has coverage limits and will only apply to property damage liability and not to the liability coverage portion of your auto insurance policy.
Choosing your car insurance deductible
Insurance deductibles come in two primary levels. Simply, you can either choose a higher deductible or a lower insurance deductible. However, you should know that the amount of deductible you pay affects your overall annual premiums on whichever side you choose.
You can land the cheapest car insurance or higher auto insurance rates depending on the deductible you choose. This is where you will learn how to benefit from your car’s comprehensive insurance deductible.
Know when to choose a higher deductible
Choosing a high average car insurance rate deductible is a good idea for lowering your monthly premiums. However, you should also go for higher deductibles if you have enough savings. Then, you can confidently pay higher amounts from your pocket.
According to the Insurance Information Institute, about 6% of drivers with collision coverage filed a claim in 2018. From these statistics, it means you might be the safest driver with a clean driving record but still drive on roads with an uninsured driver who can cause an accident at any point. You might be involved in a collision and be forced to pay a deductible to fix your car even if it was not a fault accident.
Paying higher deductibles lowers your monthly premiums. However, you can start with a lower rate deductible to save towards the emergency fund before switching to a higher deductible.
Know when to pay lower deductibles
You should choose a lower deductible if you cannot pay a higher one or if you want to save on your out-of-pocket costs. Choosing a lower deductible is also a perfect idea if you live in a congested area with a high chance of accidents.
Car insurance deductibles are usually between $100 and $2,000. A $1,000 deductible is the most preferred spot for those who want to save on their pocket expenses but still maintain an affordable car insurance policy. Of course, increasing your deductible from $500 to $1,000 gives you better discounts than switching from $1,000 to $2,000. Also, choosing a $250 deductible will save you more money than going for a $100 deductible.
From the above figures, it is clear that choosing a large deductible will help you save towards your emergency fund. You will only be responsible for a lower amount during a loss. However, this increases your monthly premiums, and you will not enjoy numerous insurance discounts offered by insurers. You can compare auto insurance rates for free using CarInsurance.net.
What if you cannot pay the deductible?
During an accident or any event, you must file a claim to your insurers so that they can process your payment and car repair. Your insurance company will write you a check for the amount it’s responsible for, the minimum coverage, and you will have to pay for the remaining amount as the deductible. However, what happens when you cannot afford the deductible?
If you cannot pay the remaining repair costs, you will have poor credit for the deductible. You have several options, including the following:
Discussing a payment plan with your mechanic
Suppose you cannot pay for the remaining amount. In that case, you can negotiate with your mechanic to waive your deductible or discuss a perfect payment plan. This will help get your car fixed, get back to the road, and pay for the remaining portion later.
Taking your car to a different mechanic
Suppose you cannot agree with your initial repair shop. In that case, your insurer will also allow you to take your car to a different repair shop. Taking a cheap car insurance check to another mechanic can help you land a more affordable repair deal.
Taking a personal loan
If you are involved in a fault accident, and your vehicle and other parties need urgent fixing. Taking a personal injury protection loan could be the best option. This will help both parties get back to the road sooner than waiting until you can afford the deductible.
Consider other available supplement options
Other supplement choices include using your credit card with a good credit score and asking family or friends to help you pay your car insurance deductible. However, it is recommended to seek a financial expert’s advice before making any financial decision.
The bottom line
A deductible is an amount you pay towards an insurance loss before your filed claim comes to action. The type of deductible you choose is based on several factors, such as the average cost of car insurance, your driving history, driving record, and your financial status. Therefore, choosing a higher insurance deductible reduces your annual premiums and benefits insurers’ numerous insurance discounts. On the other hand, selecting a lower deductible allows you to save towards the emergency fund but increases your annual premiums.
Rose Rosie is a writer for the personal finance website, Joy Wallet, which provides readers with useful information, resources, and tools to help maximize their financial fitness.