Purchasing a car for the first time brings with it something fun and invigorating: freedom. With a car and, of course, a nice amount of fuel in the tank, a driver can travel to a lot of wonderful places.
The reality of buying a car does include dealing with a host of other not-so-positive first time things. Paying all that money for insurance premiums is one of them.
Amazingly, many drivers may go years without ever having to use their insurance policy. Then, one day, an accident occurs. Insurance does cover costs associated with a number of accidents – less the deductible.
A driver might be shocked to discover he/she has to pay out of pocket expenses.
After paying premiums without reading the policy year-after-year, he/she may ask “What is a car insurance deductible?”
How Does A Deductible Work?
In the simplest terms, a deductible refers to the amount of money paid by the insured prior to the insurance company paying any money. Deductibles are, usually, listed in $500 or $1,000 amounts. So, if a car ends up in an accident and the cost is $240, then the insurance provider would not pay anything. If the accident is $2,000 and the deductible is $500, then the owner would pay $500 and bill the insurance company for the rest.
Deductibles are commonly called annual deductibles. This means the deductible amount reflects a year’s worth of insurance claims.
How does this work? Check out the following example of someone consistently getting involved in accidents that were “the other driver’s fault”:
- In February, a car gets banged in a minor fender bender that leads to $250 in damages. The insured has to pay the full $250 with no insurance payments.
- In June, another minor accident occurs with the repair costs running $240. The insured has to cover the $240.
- Another accident occurs in November and the bill is $1,000. Having already paid $490 towards a $500 deductible, the remaining out-of-pocket amount would be $10 with the insurance company being billed for $990.
Whether the insurance company pays the full amount is based on a number of factors, but this is basically how a deductible works.
High and Low Deductible Amounts
The whole “auto insurance deductible 500 or 1000” issue revolves around how much someone wants to pay monthly on premiums. The lower the deductible, the higher the cost for insurance is going to be. After all, the insurance company has to pay at a lower threshold so those monthly premiums are going to be more. With a higher deductible, the insurance is going to be cheaper since the insured is going to pay a bit more.
Drivers who own a car that is not worth much due to age or use might go with a higher deductible. The same is true of those who don’t drive much or have never gotten into many — or any — accidents.
Check the Policy
Always check the policy in full to see when, where, and how deductibles kick in. Roadside assistance or towing may come with zero deductible costs. Don’t always assume out-of-pocket expenses are mandatory in every instance.