How much do you think your insurance policy will end up costing you? If you don’t end up making a claim, the math is simple enough, since you only pay your premiums. But if you need to make a claim, your deductible could add to these costs.
Having insurance is about protecting yourself against risks and worst-case scenarios. Because a deductible is the part of a claim that you pay in those worst-case scenarios, finding the right level for you is essential.
So what is a deductible, and how does it impact your insurance? Here’s how to make the best of your deductible options.
What is a deductible, anyway?
Your deductible is the amount you will pay when making a claim. So, if you make a claim for $2,000 and your deductible is $500, your insurer will pay $1,500. If your claim is less than your deductible you won’t receive payment from your insurer.
This process is why your deductible is so important. It can have a real impact on the costs of your insurance – especially as the deductible for car insurance often applies each time you make a claim.
There’s a trade-off between deductibles and premiums. A lower premium policy will mean if you do make a claim, then the deductible you pay will be higher.
When do you pay a deductible?
The situations where you will pay a deductible depend on the policy and type of insurance. In the case of car insurance, if you are at fault in an accident, the damage or medical costs of any other drivers would be covered by your liability insurance. Liability insurance has no deductible.
If you also had collision cover and need to claim for repair costs, your policy probably will have a deductible.
If you’re in a collision that was not your fault, things get a little more complicated. In these situations, you could wind up paying a deductible if you want to get the repairs done quickly. However your insurer could later reimburse you, when they recoup the money from the other driver’s insurance company.
High or low deductible?
According to the Insurance Information Institute, increasing your auto insurance deductible from $250 to $500 could reduce your premium by an average of 15 to 30%. If you opt for a premium of $1,000 the premium could come down by 40%. However, being able to pay your deductible is key to making a claim so you should pick a deductible you will be able to afford – even if it means higher premiums.
What happens if you can’t pay?
If you can’t pay your deductible, that’s when things get a little complicated. You could still receive a payment from your insurer, but it might not necessarily help if you need repairs in a hurry.
For example if you make a claim for $4,000 in repairs to your car, but you aren’t able to pay your $2,500 deductible, your insurer may still pay you the remaining $1,500, but that won’t do you much good on its own.
That’s why it makes sense to choose carefully when deciding on the deductible on your insurance policy.
Take the time to think about it. Shop around, look at options with a different deductible, see how they change your premium then work out how much this will offset the hit you might take if you make a claim.
Fortunately Cover is here to make insurance buying easier. Answer a few simple questions, and you will be on your way to finding the right quote.