What is an automobile insurance deductible? Well, in short, your deductible is the amount of money you pay upfront (determined in advance by you, your insurance provider, and your policy) before your insurance company will pay out on certain claims. Usually, you have to pay a deductible if you file a claim which is covered by the Collision or Comprehensive coverage on your policy.

Here’s an example of how your deductible works: let’s say that an unfortunate car accident occurs and the damages to your car total $2,500. If your auto insurance deductible is $1,000, you will be responsible for forking out a thousand dollars before your auto insurance covers the remaining $1,500.

There is an inverse relationship between how high your deductible is, and how high your monthly premiums are. We’ll explore that relationship below, and also help you understand how altering your deductible can help you improve your overall finances.

How much is my automobile insurance deductible? How much is enough for my personal needs?

When determining what kind of automobile insurance deductible to choose, it is important to factor into your equations how much deductible you can afford. As we mentioned earlier, there is an opposing relationship between your monthly premium and your insurance deductible.

A low deductible means that you will have to pay very little to your insurance company in the event of a significant accident; however, it will also make your monthly premiums cost more. Setting your deductible to a high amount can drastically lower your monthly premium; but if the worst happens to your vehicle, you will have to foot more of the bill.

Hypothetically, a safe driver who believes that they are unlikely to get into a significant accident can benefit the most from raising their deductible. Not only will doing so lower their monthly payments, but if they never have to file a Comprehensive or Collision claim, then they will never have to worry about forking out that higher deductible anyway.

But it is understandable if you’d prefer to maintain a lower deductible just in case. There are still discounts and strategies to lower your overall monthly insurance bill, even with a low deductible. Most offer a discount for clean driving histories, even if you carry a low deductible. There are also discounts for driving fewer miles, having an anti-theft device on your vehicle, bundling your policy with other household members, and more.

Risk Management

It all comes down to risk in the end. When trying to make these decisions, you’ll want to consider a few elements. How is your driving record? How secure is your neighborhood? How do people drive on your daily commute?

If your driving record is pristine and you live in a good neighborhood, then you’re potentially throwing away money each month by maintaining a low automobile insurance deductible and forking out higher premiums as a result. If you are new to driving, or live in a metropolitan area, then having a low deductible might be a blessing. It is all a matter of your personal needs.

 
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