What is a Deductible for Car Insurance? Explained
What is a Deductible?
A deductible is the amount of money that you must pay toward an insured loss. When a natural disaster strikes your home or you are involved in a car accident, your deductible is subtracted, or “deducted,” from the amount your insurance company pays toward a claim. Deductibles are the method by which risk is shared by you, the policyholder, and your insurer.
In general, the higher the deductible, the lower the premiums for an insurance policy. A deductible can be a set amount of money or a percentage of the total amount of insurance on a policy. The amount is determined by your coverage and can be found on the declarations (or front) page of most homeowners, condo owners, renters, and auto insurance policies.
What is a Car Insurance Deductible?
When filing a claim, you must pay a “deductible” before your insurer will pay the balance. Car insurance deductibles are frequently associated with collision, comprehensive, uninsured motorist, and personal injury protection coverages. Typically, you have the option of a low or large deductible. A large-deductible results in a reduced insurance premium, while a low deductible results in a higher insurance cost.
Why Do You Need One?
A deductible is designed to protect insurers against paying out claims that aren’t covered by insurance policies. This means that the cost of a claim is borne by the insured rather than the insurer.
Also Read: What is a Deductible in Property & Health Insurance in 2022?
The Different Types of Deductible Options Available
There are two main types of deductible options available to consumers: fixed and variable. Fixed deductibles are set at a certain level and remain constant throughout the policy period. Variable deductibles fluctuate based on the value of the vehicle being insured.
How Much Should You Pay?
A fixed deductible means that you pay a set amount upfront before any claims are made against your insurance policy. This type of deductible is typically lower than a variable deductible because it covers more of the cost of repairs. However, there are some situations where a fixed deductible makes sense. If you own a car with low repair costs, such as an older model, then a fixed deductible will save you money.
How Does it Work?
Variable deductibles are based on the total value of your vehicle. They start at $250 and go up to $1,000. You pay a percentage of the claim each month until the full amount has been paid.
If you have a set deductible, it will be deducted from your claim payment in that amount. A claims check for $9,500 might be issued to you, for instance, if your policy specifies a $500 deductible and your insurer determines that you have an insured loss worth $10,000.
It should be noted that the deductible for homeowner’s or auto insurance applies each time a claim is made.
There are two states that deviate from this rule: Florida and Louisiana, where hurricane deductibles are applied just once per storm season.
Deductibles often only apply to the property damage coverage of home or auto insurance plans, not to the liability coverage.
Why Do You Need A Deductible?
If you own a car, you need to understand what a deductible means. It’s an insurance policy term that refers to the amount you must pay out of pocket before your insurer will cover any claims against your policy.
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