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Q: What is a Car Insurance Deductible?

December 17, 2013 12:53 PM

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A car insurance deductible is the portion of an insurance payment that you must make if your vehicle is damaged or is the cause of damage to another vehicle or to an individual. The deductible is part of your car insurance package. The amount that you choose to be responsible for greatly affects the monthly cost of your insurance coverage.

Car insurance is a type of insurance purchased to provide some measure of financial protection if you are involved in a vehicle collision or your car needs repairs due to unforeseen occurrences such as flooding, vandalism, or theft. The amount of coverage provided, as well as the actions that the insurance covers, is determined by the type of insurance that you purchase.

Insurance packages come in a variety of coverage levels. Each level provides a different sort of coverage, but whenever there is a need for any insurance to provide a payment, you'll have to pay your deductible first. The coverage levels may include payments to anyone injured in the insured vehicle, damage done to the insured vehicle, injuries or damage sustained by other parties in an incident caused by the insured vehicle, and damage sustained from fire, flood, or theft. The greater the coverage, the more expensive the insurance will be.

The car insurance deductible is also a major arbiter of price for the insurance package. Any incident that requires the insurance company to pay money will first require payment of the deductible amount by the insurance policy owner. This deductible amount is highly variable, but is often between $100 and $1,000 or more. The higher the deductible, the lower the insurance payments will be.

Many states require that drivers carry at least collision coverage on their vehicles in order to legally operate them within that state. This minimum level of coverage is deemed necessary for the public good because it covers the cost of vehicle repair or replacement regardless of who causes a collision. It may also be required when a buyer seeks to finance a new or used car purchase to ensure that the financing company receives payment in the event of an accident that totals the vehicle.

Because of the effect on insurance price of the deductible, many customers opt for higher deductible amounts, choosing to save on insurance premiums. Before doing so, a customer should consider how well he or she would be able to afford the deductible amount if it ever became necessary to pay it. If a deductible payment is needed, the customer must generally pay it immediately. If the deductible is high, this could force the customer into securing a loan to cover the cost, and the interest on such a loan might be more than the savings made on the premium. The insurance owner should also consider that each payout incident would require an additional deductible payment, which in high deductible packages could have significant costs if more than a single payout is necessary over the course of a year.

A car deductible is an added cost of car ownership. The deductible amount is variable, but in general, the higher your chosen deductible amount the lower your insurance premium will be. Balancing the deductible against the cost of the insurance can be difficult. If you manage to choose properly though, you will find that the savings achieved from a higher car insurance deductible will be sufficient to pay off the deductible amount should the need ever arise.

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