What is a car insurance deductible?

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Key takeaways...
  • Car insurance is both a requirement by law and a necessary financial product to protect you from liability in the event of a car accident
  • One of the key things to remember about car insurance deductibles is you have to pay this money in order for the insurance company to pay your claim
  • Car insurance deductible exist to maintain car insurance rates and also help to keep drivers driving safer due to paying that deductible fee

Car insurance is both a requirement by law and a necessary financial product to protect you from liability in the event of a car accident.

Many consumers would rather not pay car insurance premiums but the fact is you need to both legally and as a responsible driver.

What you can do however is find ways to lower your car insurance rates and this process starts with understanding car insurance terms such as what a car insurance deductible is.

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What is a car insurance deductible?

A deductible is the portion of a claim you agree to pay before your auto insurance coverage kicks in. In terms of saving money on car insurance policyholders with higher deductibles often benefit from lower rates.

The reason for lower rates with higher deductibles is quite logical. With a higher auto insurance deductible, the car insurance company has

  • Less financial risk exposure to you in the event of a claim
  • Policyholders with higher deductible are proven to submit fewer claims

Car insurance deductibles can range from $250 to $1000 between most car insurance companies however some even have deductibles as high as $3,000.

While a $3,000 deductible probably makes no sense for a Toyota Prius it certainly can work wonders for your car insurance rates when trying to insure a Ferrari Spyder.

One of the key things to remember about car insurance deductibles if you have to pay this money in order for the insurance company to pay your claim.

Many car repair shops offer ways around this for smaller deductibles but it’s a grey area so be careful and always secure a car insurance policy with deductibles you can afford in the event of an unforeseen accident.

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How does a car insurance deductible work?

Let’s say you get in an accident and the total repair cost for your vehicle is $4,000 and your policy deductible is $1,000.

Your car insurance company (if they agree with the repair estimate) will then cut a check to the repair company for $3,000 and you will be expected to cover the balance when you pick up your car.

How much can I save with a higher deductible?

The car insurance savings realized by opting for a higher deductible will vary from one car insurance company to next but it’s not unrealistic to expect a savings of anywhere from 10 to 20 percent off your premiums by choosing the highest deductible available.

Why is there a deductible?

Car insurance deductibles exist for a number of reasons. First, they help maintain affordable car insurance rates by keeping claims liability low for insurance companies.

Secondly, auto insurance deductibles do help people drive safer knowing that an accident will cost them some money.

Car insurance rates always vary depending on your driving record, type of vehicle insured and many other factors but the car insurance deductible is one element where every driver can manipulate to achieve better rates.

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