How a deductible works
Suppose your covered repair bill is $3,000 and your collision deductible is $500. You would normally pay the first $500, and the insurer would pay the remaining $2,500, subject to the terms and limits of your policy. If the repair cost is lower than your deductible, you would generally pay the entire amount yourself.Higher vs. lower deductibles
A higher deductible often reduces your insurance premium because you are accepting more of the financial risk. A lower deductible can increase the premium, but it reduces the amount you may need to pay when a covered claim occurs. Neither option is automatically better. A $1,000 deductible may look attractive because of the lower premium, but it can create a problem if you do not have $1,000 available after an unexpected accident. On the other hand, choosing a very low deductible can mean paying more for coverage every month.Questions to ask before choosing
- How much could you comfortably pay today after an accident?
- How much would a higher deductible actually save on your premium?
- What is the current value of your vehicle?
- How often and how far do you drive?
- Do you already have emergency savings?
