If you have a vehicle and you carry auto insurance on your vehicle, it is important that you understand how the deductibles work.
Thing #1: The Deductible is the Money You Pay When You Make A Claim
When you file a claim with your insurance company due to an accident, the deductible is the money that you have to pay to fix up your vehicle. It is the amount of money you are responsible for paying when your car is damaged. You have to pay your deductible and then your insurance provider will step in and cover the rest of the repair costs up to your coverage limits.
For example, if your vehicle suffers $5,000 in damage, and your deductible is $500, your insurance provider would pay $4,500. Or if your car is totaled, and the insurance company determines the value of your vehicle is $8,000, and your deductible is $500, the insurance company would pay you $7,500 for your vehicle.
Thing #2: A Deductible Allows You to Share Risk with the Insurance Company
A deductible is basically a way that you can share the risk of insuring you with your insurance company. That is why your insurance company will offer you a lower rate if you have a higher one.
A higher deductible means you are less likely to file low-level claims, and it also means when you file a claim, you will have to pay a larger portion of the claim.
For example, if you raise your deductible from $250 to $500, you should notice a drop in your premium as a result of you taking on more of the risk and cost should your vehicle be damaged.
Be careful with raising your deductible. You should never raise it beyond an amount that you could pay with a few days' notice. Ideally, you should have at least the amount of it saved in your emergency fund. If you can't pay your deductible, your insurance provider doesn't have to honor their obligation either.
Thing #3: Some Insurance Companies Offer Zero Deductibles
Some insurance companies offer the option of zero deductibles, which means if you get into an accident, you will not have to pay anything. This means you don't have to have money set aside to pay a deductible should you get into an accident. However, it also means that your insurance coverage is more than likely going to be on the more expensive side.
Thing #4: You Pay a Deductible Every Time You Get into An Accident
With car insurance, you pay a deductible every time you get into an accident or make a claim. It is not like health insurance, where you pay the deductible up to a certain amount, and then the insurance takes over. With car insurance, you pay each time you make a claim, and the cost remains the same.
Your deductible is the share of the money you will have to pay if you make a claim with your auto insurance provider. The amount can directly impact your insurance premium.