What is an Auto Insurance Deductible?
Choosing the right auto insurance and deciding on an auto insurance deductible can draw a person into a complicated web of information, and most people become overwhelmed when faced with such a daunting task. So, when selecting an insurance company and a monthly plan, people typically shop around for the lowest monthly payment, sign up, and call it a day. However, if people who do this have any accidents on the road, they may find themselves in a hopeless situation… and in many cases, left with no vehicle at all. You can avoid this situation entirely by spending just a small amount of time educating yourself about what exactly an auto insurance deductible is.
Auto Insurance Deductibles Explained
Your auto insurance deductible is defined as the dollar amount that you must pay for vehicle repairs after an accident before your insurance company begins to pay. For instance, if your bill at the body shop comes to $1200 and you have a $500 deductible, you must pay the first $500 of the bill and your insurance company will pay the remaining $700. This usually means the higher your deductible, the lower your monthly insurance payment will be. But this example shows that the monthly savings may not be worth the risk if you get into a fender bender.
Advantages of a Low Deductible
The advantages of having a low deductible are mainly for groups of people who have staggering monthly bills and/or inadequate savings and could not afford to pay out-of-pocket in the event of an accident. In addition, people who spend a majority of their time on the road would benefit from a low deductible as well. These people have a much greater statistical chance of getting into a collision, and would therefore do better with lower out-of-pocket expenses for repairs.
Advantages of a High Deductible
On the other hand, there may be times when a low auto insurance deductible may not be the right fit. The main advantage of a high deductible is first and foremost lower monthly premiums. There are also advantages for those who do not drive frequently, because the less you drive, the less your chances of a collision. If you do opt for a higher deductible in order to save on your monthly bill, make some plans that you can execute in the event of a wreck. Put the amount of your deductible into your savings account and forget about the money. This way, if you do get into an accident, the money needed for repairs is right there waiting for you. One caveat, however: if you do end up using the money, try to replace it as soon as possible.
When You Don't Have a Choice
There are some situations in which you may not have any choice in the matter of choosing an auto insurance deductible. If you are considered a high-risk driver – that is, if you fall into a category such as teenagers, brand new license-holders, or those who have piles of speeding tickets and a history of reckless driving – you can bank on your deductible being set for you by the insurance company. Also, if you have leased your vehicle, the lessor may dictate the terms of your agreement as well as your deductible.
By understanding what an auto insurance deductible is, you can save precious time and money throughout your lifetime. Getting educated about topics such as deductibles when deciding on auto insurance is the best way to protect yourself from unnecessary overspending and free up your hard-earned money for more important things.
