How Much Should the Deductible Be on My Policy?

The deductible on your car insurance policy should equal what you can realistically pay in the event of an accident. Choosing a deductible amount should also depend on the amount of daily risk you encounter on the road. For example, the more risk you have, the more likely you are to have to pay your deductible amount. A deductible refers to the monetary amount a driver is responsible for paying before an insurance company pays any financial amount towards the policy limits.

Deductibles range from $500-$1500 and are one of the main factors that determine an annual premium amount. The higher the deductible amount, the lower the premium costs. This is because drivers with high deductibles incur some of the costs of repair and receive lower payments due to their financial obligation. Drivers with low deductibles have less financial responsibility and pay more for their annual premium.

Choosing the right deductible

After you have compared multiple insurance carriers and decided on the best insurance provider to meet your needs, you must pick a deductible amount. As stated, a deductible should be a reasonable amount that you can pay in the event of an accident. Take the time to discuss with your insurance carrier the amount of risk you encounter everyday on the road. For example, drivers living in metropolitan areas face more risk of collision, theft, and vandalism than drivers in rural areas do. These drivers are more likely to submit an insurance claim and therefore more likely to pay the deductible. These high-risk drivers are best to choose a low deductible.

Paying the deductible

There are three main ways to pay for a deductible. The first is to take the full amount of the deductible and deposit it into an interest bearing savings account. This method provides drivers peace of mind and allows them to receive additional income from the interest gained in the account. The second method is to divide the full deductible amount into payments and deposit them into an interest bearing account. This method works best for the vast amount of drivers who do not have an extra $500-$1000 available at the start of the policy. Finally, using a credit card is always an option. This method is the least financially responsible of the three methods, but does allow drivers to fulfill their deductible obligation. Of course, drivers can always pay their deductible in cash in the event of an accident. However, for most drivers this is simply not possible.

Diminishing deductibles

As the amount of car insurance carriers continues to expand, the competition between them to retain customers and attract new ones allows consumers to take advantage of lowered rates and additional benefits. One of the most popular benefits offered to drivers are diminishing deductibles. This benefit allows safe drivers that are not involved in collisions to receive incremental decreases of their deductibles over time.

For example, if a driver starts with a $1000 deductible and is not involved in a collision that year, or other set time, their deductible reduces. If this same driver is not involved in a collision for a few years, they have the possibility of receiving a zero deductible. Diminishing deductibles are a great way to retain customer loyalty, as drivers with zero deductibles are very unlikely to change insurance carriers. Each insurance carrier has different rules and time obligations regarding diminishing deductibles. Talk with a qualified representative of each potential insurance company to ensure you are getting the best diminishing deductible benefit possible. If your current company does not offer diminishing deductibles, maybe it is time to switch to one that does.

Exceptions

If the other driver is at fault, and depending on the amount of coverage, some insurance companies do not require drivers to pay their deductible. This commonly occurs with comprehensive claims such as vandalism cases involving an identified assailant. This also occurs when the other driver in a collision does not have insurance or is underinsured. It is important that drivers receive in writing all the exceptions where they are not responsible for paying the deductible.

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