How to calculate the car insurance deductible?

If you are looking for insurance for your car or if you already have it, you should know this how to calculate your car insurance deductible. Read on, we will tell you immediately what the deductible is, why it is included in the insurance policies, how to calculate it and what you should take into account when choosing the one to your advantage.

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What is the car insurance deductible?

An auto insurance deductible is the amount of money you have to pay out of your own pocket when making a claim for an insured claim. Basically, when a car accident occurs and a claim is made, the payment that the insurer will make will be reduced by the amount of the deductible.

In the United States, the auto insurance deductible is usually a fixed amount and not a percentage. For example, $ 600. If at the time of reporting an accident to the insurer, the appraiser determines that the claim amount is $ 2,000 and the deductible is $ 600, you will receive a payment of $ 1,400 from the insurance company.

It is important that you know that, in most cases, you can choose whether or not to include a deductible in your car insurance policy. Furthermore, you can also choose the amount of the deductible.

Note: Deductibles don't just apply to auto insurance, this figure also exists in other types of insurance, such as health policies or housing, for example.

How does auto insurance work in the United States?

Why are insurance deductibles included?

Deductibles are generally applied to reduce the price by insurance premiums. The higher the deductible, the lower the cost of insurance. Why? Because the insurer shares the risk of a possible accident with the insured.

Let's say you have a deductible on your auto policy and you have an accident causing damage to your vehicle that is covered by your insurance. When paying for the repair, you will have to assume the amount corresponding to the deductible and the insurer will pay the difference. If the damage is less than the deductible amount, you will be responsible for the total cost of the repair and your insurance will pay nothing. This shared financial responsibility makes the insurer willing to offer a cheaper premium. Obviously, if you have to pay a deductible, you will be much more vigilant to avoid accidents that could make you pay the deductible amount, so the insurer's risk will decrease.

How to calculate the car insurance deductible?

When you report an accident, the deductible amount is subtracted from the cost of the repair and the total deduction is the amount you will receive from the insurer (if you have included a deductible in your policy, of course). Returning to the example we included earlier, the calculation would be as follows:

Repair cost ($ 2,000) - Excess ($ 600) = amount the insurance will pay ($ 1,400)

As we have indicated, the higher the deductible, the lower the insurance price and vice versa.

• maximum deductible = Lower auto insurance rate and higher out of pocket expenses
• Minimum Deductible = Higher auto insurance rate and lower living costs

Below we include a table where you can see the impact of a deductible on the price of car insurance.

By now you know that the deductible is not a predetermined amount, that you can decide whether or not to include a deductible in your car policy and you can also choose the amount of your deductible. But, How to calculate the car insurance deductible that's right for you? This will depend on your particular situation, your coverage needs and your monetary willingness to pay the deductibles. Next, we will explain the aspects you need to take into account before choosing an insurance with deductible.

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What factors should you consider when choosing a deductible?

Before including a deductible in your auto insurance and choosing the deductible amount for your policy, you should analyze your needs, your particular situation and (very importantly) your budget. We recommend that you answer the following questions yourself:

1. Could you pay a higher deductible in the event of an accident?

What is your savings account usually like? This is important to know because if you have a $ 1,000 deductible, you should pay that amount of money when you file a claim with your insurer. Could you assume that amount to repair your car? If the answer is no, you need to choose a lower deductible. Instead, if you have that cash on hand, it might be worth opting for a deductible of that amount.

2. What is the return on investment?

Deal with the insurance agent. How much would you really save with a higher deductible? Would you save an amount equal to that deductible in the event of a claim?

For example, going from a $ 500 deductible to a $ 1,000 deductible would help you save 10% on your annual premium. Your annual premium with the $ 500 deductible would have been $ 800, but with the $ 1,000 deductible, the premium is $ 720.

You now have a deductible that has increased by $ 500, but you are saving $ 80 per year. This means you would need a little over 6 years to make up for the difference. If you have not had an accident in those 6 years, the excess of the deductible will be worth it. If not, you will have to pay more money out of your own pocket. This is a basic calculation you need to do.

3. How often do you have accidents?

If you have a lot of accidents and claims, you should choose a lower deductible. This means that you will have to pay less every time you report a claim to your insurer.

If you have a good driving record, a higher deductible might be for you. You could save on insurance premiums and use them to pay the deductible in the event of a claim. For example, a driver who hasn't had an accident in 20 years may not be frightened by the example we have included above the 6-year period it takes to make up for the difference in a higher deductible. You can opt for a higher deductible because you feel you have a lower risk of a collision.

4. What is the value of your vehicle?

The insurance price for an expensive vehicle is higher. In this case, a high deductible might make sense as it would offer greater savings on premiums.

On cars of lower value, it may not be necessary to include a high deductible because the cost of repairing the damage may not equal the deductible. For example, if you have a deductible of $ 1,000 and your used car needs a total repair of only $ 600, you will pay the full amount out of your own pocket. Your insurance would pay nothing. Also, a lower value car will have a lower insurance cost. Therefore, the difference in price between a $ 500 deductible and a $ 1,000 deductible would not offer significant savings on premiums.

5. Can you combine deductibles?

If you are a good driver, you can offset the costs by having a high deductible for collision coverage and a low deductible for comprehensive insurance. This ensures a high coverage line for unforeseen accidents and "acts of God". Plus, full coverage is generally cheaper.

You will be able to offset the increased cost of the overall premium by maintaining a higher deductible for collision insurance. Collision insurance covers the costs if your vehicle collides with another car or other object. So, if you don't have many accidents, you can take the risk with a higher deductible.

However, to keep it simple, you may want to keep the same deductible for all types of coverage.

When is the insurance deductible paid?

The insurance deductible is paid when you report an accident to your insurer. If you report an accident to your insurer in the amount of $ 2,000 and your deductible is $ 500, the insurer will pay you $ 1,500 and you will pay the other $ 500 when you have the vehicle repaired. There is also the possibility that the insurer will pay $ 1,500 to the shop that repairs your car, in which case you have to pay the difference.

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