Understanding Car Insurance Deductibles

Car insurance deductibles are a part of two of the three major elements of car insurance: comprehensive and collision coverage. Liability coverage does not involve a deductible. A deductible is the amount of money the policyholder has to pay out of pocket before the insurance company handles the rest of the claim. For example, a $500 deductible on collision coverage means that the car owner pays the first $500 of any damage caused by a collision. The insurance company pays the rest of the claim over and above the $500 deductible.

Car Insurance Deductibles Affect Policy Premiums

The deductibles for collision and comprehensive insurance are two of the biggest ways for a policyholder to control the cost of auto insurance. A higher deductible means that the insurance company may not have to pay anything for a minor accident and this results in a lower insurance premium. A common deductible amount is $500, but can go as high as $1,500 or $2,000. A $1,500 deductible may save a driver up to 20 percent versus a $500 deductible. A lower deductible means that the policyholder pays less money out of pocket in the event of a car insurance claim. However, lower deductibles generally mean higher car insurance premiums.

Why the Age of a Vehicle Can Affect Car Insurance Deductibles

Comprehensive insurance pays to repair or replace a vehicle that is damaged without being involved in an accident or is stolen. That would include situations like fires, floods and vandalism. Collision coverage pays to repair or replace a vehicle that's damaged when there's an accident that's due to the fault of the driver. Most insurance experts agree that both of these coverages, as well as liability protection, all offer valuable protection for a newer vehicle. But when a vehicle gets older and is both less valuable and less dependable, a vehicle owner may decide to replace the vehicle rather than pay to repair damage from any future wrecks. That can lead to the decision to go one step further and raise deductibles as high as possible while dropping collision or comprehensive insurance coverage altogether. There is no law requiring car owners to purchase comprehensive or collision coverage - state laws only require that liability insurance is in effect on all vehicles.