When you are in the face of shopping for car insurance, you are likely to come across the term deductibles. This is a term you will hear when you are shopping for compressive car insurance, to be particular. You might need someone, an agent or anyone else, to explain how does car insurance deductible work. With this knowledge, you are better informed about where to raise or lower your deductibles while taking a policy cover for your car.
How Does Car Insurance Deductible Work
Not all car insurance coverages carry deductibles. In major cases, deductibles are only carried by a comprehensive insurance cover. Since deductibles are allowed for comprehensive coverage, you can also get deductibles if you buy collision insurance coverage.
Insurer relies on deductibles to determine the amount of payout you should receive after verifying your claim. Deductibles are among many factors insurance companies consider giving the minimum possible payout as compensation.
How Deductibles Affect Your Premium
If you pay higher deductibles, your insurance premium rates decrease. This is because you have agreed to bear a higher share of liability when your car gets involved in an accident. Bearing a higher proportion of repair or replacement costs means your out-of-pocket costs will be high.
The out-of-pocket will be high only when your car is involved in an accident and makes a claim. If you are a safe driver and never get involved in an accident, the higher out-of-pocket costs will only remain on paper. Technically, you made no claim, and your insurer will not subtract your deductibles provision.
If you pay lower deductibles, expect higher car insurance rates, but fortunately, your out-of-pocket will be low. Car insurance rates are high if your deductibles are low because the insurer bears the largest burden of your car replacement or restoration. Since an insurer wants to be in a stable financial position to compensate you after subtracting your little deductibles, they have no option other than charging higher rates for car coverage.
If an accident occurs, this is when you will feel the rationale of low deductibles. You will enjoy full restoration or repair of your car without just little out-of-pocket costs. However, if your car never gets involved in an accident and you make a claim, your insurance will remain high and never benefit from low deductibles.
When Do You Pay Deductibles?
You pay a deductible only when you claim a car insurance policy that carries such. If your car coverage has no deductibles, you do not pay them during the claim.
Paying deductibles does not necessarily mean you must go to your pocket and write a check to your insurer. Instead, they lessen the amount of deductibles from the payout.
It would beat the purpose of writing a deductible cheque to your insurer to prompt them to compensate you.
Example
After a car was involved in an accident, the insurance company investigated the accident claim. Upon finalizing the claim and deducting provisions like the car’s depreciation, its value was $30,000. However, the insured had deductibles amounting to $5,500. The $5,500 will not be paid through a cheque or cash transfer to the insurer. Instead, the insurer will less deductibles of $5,500 from the $30,000 value of the car. The insured will receive a payout of $24,500 as compensation.
