How Does an Insurance Deductible Work?
A car insurance deductible is the amount you will pay out of pocket on a claim before the insurance money kicks in. You choose the amount of your deductible when you purchase your car insurance policy. And if your circumstances change, you can change your deductible amount. However, you cannot change your deductible just prior to filing a claim – this is considered insurance fraud and it can land you in jail and/or facing big fines.
For illustration purposes, here is how auto insurance deductibles work: You buy a policy with a $500 deductible. If you get into an accident – or other covered event – you will need to pay the $500 deductible before the insurance company starts paying for the rest.
Deductible amounts vary, but understanding the advantages and disadvantages to choosing a lower or higher amount will help you make your decision on what is the right fit for your needs.
Should I Choose a High or Low Deductible
A high deductible means a lower premium, while a low deductible means more out of your pocket for your premium. There are pros and cons to both so it depends on your circumstances. Let’s go a little deeper.
High Insurance Deductible
The main advantage of choosing a high deductible is it will help lower your monthly costs, but you will assume more financial risk. For example, if you needed to file a claim, you would have to pay higher out-of-pocket costs for any repairs needed to any vehicles or property damaged.
Let’s say you got into a car accident and it caused $5,000 worth of damages and your deductible is $4,000. You would need to pay $4,000 to repair any of the damages before the insurance company covered your claim. After your costs, the insurance company would then pay the remaining $1,000 for repairs.
Low Insurance Deductible
If you decided to choose a lower deductible, your monthly rates may be higher, but it can save you money in the end if you are involved in an accident. The main benefit is lower out-of-pocket costs if you needed to file a claim.
If you were in a car accident that resulted in $5,000 worth of damages, but had opted for a $500 deductible, you would then only have to pay $500 to repair the damages and the financial responsibility and remaining balance of $4,500 would be shifted to the insurance company. Even though you still needed to pay a portion to repair the damages, your total expense is cut significantly because you had a lower deductible.
Overall, choosing the right deductible for you can be difficult, but when considering your policy coverage, a good recommendation is to carefully weigh your budget consideration against your exposure to potential risks. There is no one-size-fits-all and whichever you decide on, make sure the deductible amount best fits your situation.
Does Insurance Pay Back Your Deductible?
No, you won’t get your deductible back in the vast majority of situations. This is the amount you agreed to pay out of pocket in a legally-binding contract with your insurance company. If you find your circumstances have changed and you need to lower your car insurance premium, you can raise your deductible amount. Just don’t do that after something happens and right before you file a claim. That’s considered fraud and you can get in serious trouble if caught.
What is the Difference Between Deductible and Out of Pocket
Your deductible is a set amount that you and your insurance agency have agreed you will pay when you file a claim. So, unless you change it, your deductible will always be the same amount. Your out-of-pocket costs will vary depending on how much is left to pay for after your insurance company has settled your claim. For example, if you cause an accident and you have $25,000 in bodily injury liability coverage and your deductible is $500, you will pay $500 and your insurance company will pay $24,500. If there are injuries beyond $25,000, you may be liable for those costs out of pocket.
Looking for Low-Cost Auto Insurance Online Today?
If you’re looking to save money on your car insurance, you’ve come to the right place. Freeway Insurance can help you find a low-cost auto insurance policy that fits your needs and budget. Request a free auto insurance quote online or over the phone at 800-777-5620 or stop by one of our locations.