If you own and drive a car, you should have auto insurance. In fact, having insurance coverage on your vehicle is mandatory in most of the 50 states
, with the only two exceptions being New Hampshire and Virginia. That being said, just because an insurance policy isn’t mandatory in either of those states doesn’t mean it’s not a good idea to have an auto insurance policy if you live, work, and drive in Virginia or New Hampshire. The reason to do so is because a car insurance policy can ultimately help you afford to pay for medical costs, bodily injury, and property damage if you’re involved in a car accident.
Just like homeowners purchase homeowner’s insurance in case something happens to their house, being able to file an insurance claim if you’re in an automotive accident can help you avoid taking on excessive medical debt or going to court over the cost of replacing a mailbox that you hit. While paying car insurance companies upfront for your insurance coverage may seem like money down the drain if you think of yourself as a good driver, all insurers—regardless of industry—exist in order to keep your out-of-pocket costs low when the worst happens. Just because you’re a safe driver doesn’t mean that you won’t be involved in an accident where you’re not the at-fault driver.
While you’ve probably seen advertisements for a variety of auto insurance companies on television and the internet, you probably have spent less time thinking about the features that comprise your auto insurance — and impact your wallet. Car insurance rates can vary wildly based on the overall coverage you’re purchasing, and one important aspect of your insurance costs to factor into your decision has to do with your deductible.
In a nutshell, some of the car insurance quotes you receive will be more or less expensive based on the type of deductible you select as part of your coverage. Deductibles can have both short-term and long-term benefits, so it’s especially important to understand them if you want to get the most value from your auto insurance coverage. Keep reading to learn more about how deductibles play a role in your insurance coverage, as well as how to get the most value from your auto insurer when comparing auto insurance quotes.
What is a deductible in the first place?
In any auto insurance quote, the two most important factors to pay attention to are deductibles and car insurance premiums. The premium is the amount of money that you pay to the auto insurer annually in order to have insurance coverage on your vehicle. The amount you pay in your premium has to do with the type of deductible you choose.
While you pay your premium each year regardless of if you’ve been in an accident or not, your deductible is only paid if you need to file an insurance claim. Generally speaking, your deductible is the out-of-pocket amount you would have to pay before your insurer starts to pay for damages that go beyond your deductible.
For example, if you’re involved in an accident due to inclement weather and crash into a light post, your tire and axel may get bent and the hood could get damaged. If your deductible is $1,000 and you have a total of $3,500 worth of damages, you would pay $1,000 and your insurer would cover the difference of $2,500 in order to get your car repaired.
On the other hand, if your car was parked on the street and got dented overnight, the bodywork to fix the dent might only be $750. In this scenario, if your deductible is $1,000, you’d pay $750 for the bodywork — and your insurer would kick in nothing to help cover the costs.
Both of these examples help to illustrate why some people would choose a higher deductible or a lower deductible. If you have the cash on hand in an emergency fund to manage a larger cost for your deductible, you might be fine with paying a higher out-of-pocket expense if it means that you’re ultimately paying less each year for your car insurance premium. On the other hand, if you’re just out of college and have your first car and auto insurance policy, some of the best car insurance companies for you might be ones with lower rates and a moderate deductible amount that won’t drain your bank account in the event of a car accident.
Different types of auto insurance deductibles
When it comes to the type of auto insurance you’re shopping for, there are three main types of insurance products offered by auto insurers: comprehensive insurance, collision coverage, and liability insurance. Of those three types, liability coverage doesn’t allow for deductibles, but the first two (comprehensive and collision) do. If you’re comparing quotes with various auto insurers, you may come across the phrase “full coverage car insurance.” This means the car insurance includes collision, comprehensive, and liability coverage. Learn more about comprehensive and collision—and their deductibles—below.
As the name suggests (and you’ve probably already guessed), collision coverage is the part of your auto insurance policy intended to cover any time your car is involved in an accident and hits something else. Collision coverage covers any accident where your vehicle runs into another car, tree, light post, you name it.
Before your insurance policy kicks in, you’ll need to cover the cost of your deductible. As such, if you don’t have the best driving record when it comes to accidents, it may make sense to have a slightly lower collision deductible. On the other hand, if you’ve successfully completed several defensive driving courses, a higher deductible might be totally swingable—particularly if you have money set aside to cover your deductible in the first place.
Comprehensive coverage covers everything not covered by your collision coverage. This could be anything from damage due to vandalism to damage caused by inclement weather such as hail. It’s also worth noting that if your vehicle is stolen, comprehensive coverage can also kick in, although it’s still worth installing an anti-theft device in your vehicle if it doesn’t come with one.
Your comprehensive coverage deductible doesn’t have to be the same as your collision deductible. This means that if you’re less concerned about things like vandalism or hail, you may be comfortable with a higher deductible on the comprehensive side of your policy. That being said, if you’ve had issues with vandalism or theft before — and don’t have much in the way of an emergency fund right now — it might make sense to keep a lower deductible.
Personal injury protection
Some auto insurers offer personal injury protection, also known as PIP. This varies state to state, but if you qualify for PIP and choose to take out PIP coverage as part of your automotive insurance policy, personal injury protection will help cover any medical costs associated with anyone in the vehicle who gets hurt during an accident. Not all insurers offer personal injury protection with a deductible, and in some cases your deductible is set forth by the state and is thus non-negotiable.
Uninsured motorist property damage
If you’re involved in a hit-and-run accident or an accident where the other driver is uninsured, uninsured or underinsured motorist property damage insurance can help cover some of the damages, rather than requiring you to use your own policy. Similar to personal injury protection insurance, not every auto insurance provider can offer uninsured motorist property damage, and not every policy will have a deductible. In some states where this type of insurance is available, the deductible is generally less than $300.
Where does liability coverage fit in?
If you’re at-fault for an accident, this is where your liability coverage will kick in. You may have two different types of liability coverage: property damage liability and bodily injury liability. Of course, each of those will only come into play if you’re involved in an accident where you’re the driver at-fault for causing either the property damage or injuring someone else.
In these situations, you don’t have a deductible to pay. Instead, your auto insurer will pay for the other party’s damages. If your vehicle also sustains damages that you need to get repaired, you’ll need to use your collision policy in order to handle the damages. In that scenario, while you won’t need to pay your liability deductible, you’ll still be responsible for your collision deductible.
How different deductibles affect your costs
Based on the information provided in your credit report, you will get one of a few different credit scores
. Your credit score may range anywhere between a 300, which is considered a bad credit score, and 850, which is near perfect credit. While these are numerical values, they generally break down into categories such as Poor, Good, Very Good, and Excellent. Obviously, it’s best to have excellent credit, and understanding the aspects of your credit report that are hurting and helping your credit score can allow you to improve your credit over time.
Some of the biggest factors from your credit report that inform your overall credit score include your length of credit history, how much money you owe across multiple cards and loans, and the timeliness of your payments. If you have had multiple credit cards and loans for several years, that’s seen as much more helpful information than somebody who just opened their first credit card two months ago.
Just like you can get a free credit report, you’re also eligible to access your free credit score from a variety of websites. Discover has a free-to-use online platform for monitoring your credit score, even if you don’t have a credit card or loan from Discover. You can also access your free credit score online using a website like Credit Sesame
Are there times when you don’t pay your deductible?
As has been outlined already, there are some scenarios where another driver’s liability insurance kicks in rather than your own policy. In these sorts of situations, you won’t need to pay your deductible, since the insurance claim will be made on behalf of the at-fault driver and their auto insurance provider. That being said, if you’re the at-fault driver, you can expect to pay a deductible on your insurance claims.
When you’re not the at-fault driver
Keep in mind that the only time you may not need to pay your deductible is if the other driver is insured and at-fault. If the other driver is at-fault for the accident but is uninsured, you may not be so lucky. If the other driver is uninsured and you still need to get repairs done on your vehicle, you’ll wind up paying your deductible when you file the insurance claim with your insurer. The only time this won’t apply is if you’re in a state with a policy that allows you to have uninsured or underinsured property damage coverage, in which case you could use that policy prior to filing on your own collision insurance.
If you don’t file a claim
Another time when you won’t have to pay a deductible following an accident is if you decide not to file a claim. While this may seem obvious, some people believe that if they’re in an accident it’s important to file a claim immediately, even with minimal damages. While that might make sense if you don’t have a very high deductible, some auto insurers will increase your premium if you’ve been in an accident. As such, some people may decide not to file a claim when in a minor accident. In these scenarios, you obviously won’t need to pay your deductible, because any work getting done on your car you’re planning on handling yourself without involving your insurance company and filing a claim.
Choosing the right deductible for you
So, now that you have a solid understanding of deductibles, how do you figure out which one is the right one for you? Ultimately, picking a car insurance deductible comes down to managing the trade offs of each option. If you pick a higher deductible, you’ll have a lower monthly or yearly premium. However, if you have a deductible so high that you can’t afford it in the event of an accident, you may be putting an extra financial strain on yourself and your family by having a higher deductible.
On the flip side, a low deductible is easier to manage in the event you’re in an accident; however, it means that you’ll pay a higher monthly or annual premium. If you’re just getting started on your own and are used to your parents paying for your insurance — or you don’t have a lot of extra money saved up for emergencies — you may find that a lower deductible is worth signing up for as you’re getting your financial standing. That being said, you can always update your policy after a year or two, meaning that you don’t have to be sacrificing short-term gains for long-term stability unless it fits your appetite for risk.
Ultimately, you’ll need to reflect on your driving record to determine whether or not you’re more or less likely than the average driver to get into an accident. If you do determine that it’s necessary for you to have a high deductible in order to save on your monthly or yearly premium, make sure to start saving up money to the tune of your deductible amount just to be certain you won’t run into any problems down the road.
The bottom line
While there are a variety of ways to get cheap car insurance, understanding the ins and outs of how your deductible plays a role in the premium you pay is critical if you want to get the best value out of your insurance policy. Yes, you can save money with safe driving car insurance discounts and a high credit score, but knowing what you’re paying for (and not overpaying!) is just as important.
As you shop around and get quotes from different car insurance companies, make sure to pay attention to what the various deductible amounts are. A high deductible could mean a low premium, and a low deductible will likely mean a higher premium. Managing the trade offs presented by both options require a bit of reflection, and may also depend on the state you live in. For example, some states require a certain amount of coverage or a certain deductible amount, while others are more lenient and let drivers customize their policy to meet their needs.
Hopefully, thanks to the information provided above, you feel a lot more confident in your understanding of how you can find the right deductible amount for your car. Car insurance can get confusing, and having a baseline knowledge of how deductibles, premiums, and different coverage types work can be a major boon when you head in to chat with your policy specialist. With the right knowledge and a clear perspective of your financial needs as well as your past driving history, you should be able to pick the car insurance policy that provides you with the best value based on your own personal needs.