The Advantages & Disadvantages of Car Insurance Deductibles
A car deductible is an amount of money you have to pay before your insurance company makes any payments at all towards the cost of your car repairs. You can usually choose the amount of your deductible, with common amounts ranging from $100 to $500 or more. The size of your deductible will impact the amount of your car insurance premiums, since it directly affects the risk that your insurance company will assume.
Advantages of Deductibles
One of the main advantages of a deductible is that you reduce your car insurance premium by raising the deductible amount you are willing to pay. If your collision deductible is $1,000, for example, instead of $100, the cost of your insurance could be dramatically lower.
Another advantage is that you can select a deductible amount that suits your budget. If you can afford repair costs of a few hundred dollars, you might want to select a higher deductible to take advantage of a lower monthly premium. If any unexpected car expense would be a financial disaster, you can pick a lower deductible so your insurance company would bear the brunt of any covered repairs.
Disadvantages of Deductibles
A disadvantage of a deductible is that you could end up paying your insurance company a premium every year and it might not ever have to pay off any of your expenses. If your car never has covered damages in excess of your deductible, you'll be responsible for both your repair costs and the cost of your insurance, with your insurance company liable for nothing.
Another disadvantage of a deductible is that you might have to come up with a large amount of money in a short time to fix your car. This is particularly dangerous in the case of a large deductible. If you have repeated high expenses, you'll have to pay the amount of your deductible every year.
Types of Coverage
There are many different parts to an auto insurance policy. Your deductible will only apply to the collision and/or comprehensive parts of your policy. Collision coverage pays for damage as a result of a crash with another vehicle, while comprehensive covers non-collision damage, such as that caused by fires, floods or theft. Damage in these areas can only cost up to the value of your car. The remaining parts of your policy usually cover your liability for medical costs or property damage, which could potentially run into the hundreds of thousands of dollars. Deductibles don't apply to these areas of an auto insurance policy.
Choosing the Right Company
Some companies might offer lower-cost insurance or deductibles at the cost of reliability. If your car is damaged, the last thing you will want to deal with is an uncooperative insurance company. Independent agencies and reviews can help steer you in the direction of dependable companies you can rely on in the case of an accident or other incident. Balancing the advantages and disadvantages of a car insurance deductible involves weighing the overall merits of an insurance company as a whole.
John Csiszar has written thousands of articles on financial services based on his extensive experience in the industry. Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to his online work, he has published five educational books for young adults.