A deductible is the amount you pay before your insurance carrier pays any claim. Insurance companies offer deductibles on certain coverage in insurance policies as a method of sharing risk with the people they insure. Insurers believe that if you, the insured, share some of the risk you will likely be more careful and try to minimize the possibility of a claim. Since you, the insured, pay your share before the company is liable for their share, smaller potential claims are often avoided.
The deductible you choose depends not only on the particular coverage but further on your willingness and ability to pay the specified amount in the event of a claim. In other words, select a deductible based on your tolerance for risk. Your agent should be able to help you choose a deductible that is right for you. Often, the decision is an easy one as insurers may only offer a few choices in deductible for a specific coverage. CarInsurance.com's website will give you suggestions when you select a coverage package during our quote process.
Typically, which type of coverage offers a deductible? The most common type of coverage with a deductible is physical damage (also known as comprehensive and collision). This is coverage for your vehicle itself. Physical Damage pays for damage caused whether or not at fault. In many cases if you have borrowed money to purchase your vehicle through a bank or credit union, the lien holder will require that you carry this coverage. This coverage is usually required in the event any damage occurs while you are still paying for the vehicle. Typical physical damage deductibles are $250, $500, and $1000. Some people choose to have a lower deductible for Comprehensive coverage (also referred to as Other Than Collision), because this coverage pays for little items like vandalism. Therefore, some pick a $100 deductible for Comprehensive and a $250 deductible for Collision coverage. Higher deductibles will reduce the cost of your insurance by lowering your premiums. When evaluating higher deductibles, it is a good idea to consider carefully your circumstances. Ask your insurance provider for quotes for various deductibles, and analyze them carefully before making a decision. During CarInsurance.com's quote process, you can easily change the deductibles on the coverage page and click on the Quote tab to see how it affects your premiums. Many visitors like to go between the pages and just compare prices with different deductibles. If you pick a higher deductible, this is a great way to save on the total cost of your policy. For example, increasing your deductible from $250 to $500 could reduce the physical damage portion of your policy from 5% to 20% depending on the insurance carrier.
Another type of coverage typically offered with a deductible is Personal Injury Protection or PIP. This coverage is also sometimes referred to as No Fault. "No Fault" insurance is a general term that is used to describe any auto insurance system that only requires drivers to carry insurance for their own protection, and places limitations on their ability to sue other drivers for damages. In an accident, under no fault laws, your auto insurance company will pay for your damages (up to your policy limits), regardless of whom was at fault for the accident. Any other drivers involved will be covered by their auto insurance policies. Not every state requires this type of coverage. No Fault is required if you live in: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah, or D.C.
No Fault is usually offered with or without the option of a deductible. You can choose to purchase this coverage with a deductible if you want to absorb some of the risk as with other coverage such as physical damage. As with physical damage, the higher the deductible, the lower the premium on the No Fault portion of your policy. Your agent may recommend taking a deductible on your No Fault if you have health coverage elsewhere since you can only make one claim on any one injury. Some health insurance policies exclude automobile accident so it may be wise to check with your healthcare provider to make sure you are covered if you decide to go with a deductible. Common deductibles options on No Fault are $0, $250, $500, and $1000.
These coverages are setup in CarInsurance.com's nationwide quoting system with a deductible:
- Uninsured Motorist Bodily Injury (GA with one insurance carrier)
- Personal Injury Protection (DE, FL, HI, NJ, NY, and OR)
- Comprehensive (all states)
- Collision (all states)
- Uninsured Motorist Property Damage (CO, GA, and IN)
As you can see, only a few coverages have the option for a deductible. As an agent, I have a higher deductible on my Personal Injury Protection because I have medical insurance that will coverage my injuries. I have a $250 deductible on my Physical Damage coverage and in my state there is no UM or UMPD, but if there were, I would not choose a deductible. I hope this helps you the next time you are choosing deductibles for your policy.