As you are likely aware the deductible is the portion of a covered loss you pay before the insurance company becomes responsible for payment under the policy. For example, let's say you are involved in an accident that causes $2,500 worth of damage to your car and your chosen insurance deductible is $500. You will pay $500 toward the damage repair expense and your insurance company will pay the remaining $2,000.

So basically a deductible is the amount of money you are required to pay yourself before your insurance coverage begins. If you take a $500 deductible, any damages under that amount you will pay yourself. Deductibles are a part of insurance policies (such as auto and health) to help lower the cost of your insurance because you are assuming some of the risks yourself.

By having a deductible amount that policyholders pay out for their physical damage claims (collision and comprehensive) insurance companies can also avoid paying out benefits on relatively small claims. This is the grand scheme of things helps keep car insurance prices down.

A typical auto insurance policy, for example, may carry a $500 deductible. If the owner of that car accidentally hits another car while parking and both drivers agree the damage is minimal, he or she may pay the $500 repair bill out of his or her own pocket instead of using insurance and this keeps costs down for both sides. Insurance does not pay out a claim and the person's insurance rates do not go up due to the claims history of the person.

The amount of a deductible is almost always proportional to the amount of the premiums charged by the insurers. In order to have a lower deductible the policy holder would have to choose (agree to) higher premiums. For those who want lower premium payments, they can choose to have a higher deductible.

Car insurance deductibles for comprehensive and collision coverage typically range between $250 and $1500. Choosing a deductible of $1500 could potentially save you between 10 and 20 percent off your insurance premiums. There are some insurers that offer $0 deductibles but the rates will be much higher than those of drivers who have a $500 deductible.

It is important to choose a deductible that you can afford. You do not want to be stuck in the situation where you are involved in an accident but then are not able to get your car repaired because you do not have money to pay your deductible amount.

As mentioned earlier typically if your car is going to be repaired after a covered loss (accident) then you pay out the deductible amount first to the repair shop and then the insurance company pays out their part, the remainder of the repair bill. If your car is not just damaged but found to be a total loss then instead of you paying in your deductible amount to the insurance provider, that amount may be taken out of the settlement amount you would receive for the value (ACV) of your car.

The deductible is not taken out of the limit of your policy but the amount you would be paid out if there is a settlement due to a total loss of your vehicle. If the amount of the settlement was going straight to a lien holder then the deductible amount may instead not be subtracted from the settlement but still owed by you. It would depend upon the terms of your policy and the specific situation how the deductible would be taken care of if your car was totaled out.

If you have questions regarding a specific insurance claim regarding the deductible amount and when it is required to be paid then you can speak with your insurance agent or contact your state's regulatory body. States' insurance regulators normally have a consumer division that helps answer questions of this nature, especially if you have any questions regarding insurance laws in your state.