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Understanding Auto Insurance Deductibles: When They Apply, How They Affect Rates

February 3, 2012

Auto insurance deductibles are one of the commonly misunderstood parts of an auto insurance policy. If you don’t carry full coverage on your policy, but instead have liability only, you don’t have to worry about deductibles. However, if you carry comprehensive coverage, collision coverage or both, you will have a deductible for each of these two options. The deductible you choose can have an impact on your insurance rates and also affects how certain types of claims will impact you financially.

Deductibles and Insurance Rates

When you are shopping around for car insurance quotes, one of the items you will have to select is a deductible, or two deductibles if you carry both comprehensive and collision. The deductible is the amount you will be responsible for out of pocket if you file a claim in which the deductible applies. The amount of your deductible has an impact on the premium you pay for car insurance.

Generally speaking, a higher deductible may carry a lower premium because you are taking on a larger portion of the responsibility in a claim situation. This means that the insurance company can expect to pay out a lower amount on the claim.

Some drivers find that comprehensive coverage is less expensive than collision coverage, depending on the type of car they drive and a variety of other factors. For this reason you may choose to carry a lower comprehensive deductible than what you select for your collision deductible. A lower comprehensive deductible means you will pay less out of pocket for claims due to vandalism, theft or any other non-collision incident.

When Your Deductible Applies

Insurance customers are often confused in regards to how and why a deductible is applied in a claim situation. When it comes to your collision deductible, the rules are generally straightforward. If you are found at fault or partially at fault in the accident and your collision coverage is thus put to use in order to repair your vehicle, you will be responsible for the deductible amount. If you are not found at fault in the accident, depending upon the province you reside in, the damage to your vehicle will be the responsibility of the other driver’s liability coverage, or paid out under the direct compensation section of your policy in the no-fault system. Your collision coverage and thus deductible do not come into play.

The comprehensive deductible is a little different. In almost any comprehensive coverage claim, you will be responsible for the deductible. This is because these claims are of a different nature; there is no other driver and thus no other insurance company involved. A comprehensive claim may be filed for damage from vandalism, theft, fire or any other source that is not a collision.

Drivers sometimes feel that they should not pay a deductible in a situation where they were not in any way responsible for the damage to the car, as is often the case in comprehensive claims. The use of the deductible system is one of the methods through which car insurance companies keep rates lower for everyone, lowering the impact of such claims and also making it less likely that people will file small claims that take more resources to process than they are worth. You may find that you can select a low deductible for your comprehensive coverage without seeing much of an increase in your rates; this can make such a claim easier to handle financially if it should occur.

Selecting your Deductibles

The most important thing to consider when choosing a deductible is how much money it will save you on your policy each year compared to how much you would be responsible for out of pocket. That is, you need to find the right balance between what fits your budget for insurance and what you can reasonably expect to be able to afford in the case of a claim. Remember that if you choose a higher deductible in return for a lower premium and don’t have a claim for many years, the money you save over that time period can put you ahead of the game. On the other hand, if you do have a claim you will have to be able to handle the out of pocket amount.

When you shop for car insurance, ask for quotes with several different deductible levels and everything else equal. This will allow you to see what the real rate difference is for various deductible amounts. In some cases the difference may not be enough to make it worth the risk of having to pay more out of pocket in the event of a claim. Select a deductible that you can live with in the event of an accident at a rate you can live with on a regular basis – this balance is the key to choosing deductibles.

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