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Deductible Refresher

A deductible is the out-of-pocket amount you agree to pay when you file a car insurance claim. Depending on the coverages you add to your policy, you could have one or several deductibles. And not all coverages have deductibles.

In general, the higher you set your deductible, the lower the cost of the coverage. That's because you're assuming more of the financial risk with a higher deductible.

Deductibles are typically selected with comprehensive coverage, collision coverage, and auto loan/lease (gap) coverage. In some cases, you'll also choose a deductible on personal injury protection (PIP) coverage and on uninsured/underinsured motorist coverage.

Your liability coverages will have limits, but no deductibles.

How deductibles work

If you're found at fault in a car accident and you have comprehensive and collision coverage, the first portion of your vehicle repairs are covered by your deductible — everything above that amount (and below the actual cash value of your car) is picked up by your insurer.

So if you're in a collision that causes $5,000 of damage to your car and you have a $500 collision coverage deductible, you'll pay the first $500 and your insurer will pay $4,500 after that (assuming your car's worth more than $5,000). But if your bill is $490, you'd cover it all.

do I have to pay my deductible if I’m not at fault?

It depends on how quickly and easily fault is determined after the accident.

If the investigation takes a while and you'd like to get your car fixed in the meantime, you may need to pay your deductible out of pocket. If another driver's deemed at fault after you pay your deductible, insurer’s  embark on a process called subrogation.

Through subrogation, one insurer receives money from another insurer in order to reimburse you, the policyholder. If this process is successful, your deductible may be refunded.

Glass damage

 Comprehensive coverage may have a requirement for glass damage. If your windshield or a window breaks, you may not need to pay a deductible for it to be fixed.

Car theft

Because vehicle theft falls under the umbrella of comprehensive coverage, you'll need to pay your deductible to get a cash settlement when the car isn't found. The value of the car at the time of the theft, or what we call its actual cash value, will be the amount of your settlement (minus deductible). This way you can buy a new or used car of roughly the same value.

If your stolen car is found and there's damage, comprehensive can help cover the cost of repairs, and you'll pay your deductible as you normally would.

Uninsured and at-fault drivers

When you add collision coverage to your policy, a collision deductible waiver allows you to skip the deductible when you're struck by an uninsured driver. If the deductible waiver's available, it's also required when you add the coverage to your policy.

higher deductibles = more out-of-pocket expenses

There's no doubt about it: Having high comprehensive and collision deductibles on your car insurance policy will mean paying more out of pocket if you run into a streetlight or your car is stolen. But high deductibles also mean lower rates for your monthly or biannual insurance payments, so many people suggest pumping up your deductible to save money. By doing this, you're assuming more financial risk behind the wheel.

If you do decide to save by raising your deductibles, make sure you set some money aside in an interest-earning account. That way you'll have the money handy should you ever need to file a claim with your car insurance company.

lower deductibles lead to better coverage

Now let's say you revised your deductible before that tree branch fell, this time electing for a $100 deductible. Doing so bumped your 6-month car insurance premium up $42. And now you can file a claim, pay just $100, and have your insurance company handle the rest of the bill.

It's your choice. If you do need to file a claim, you'll be over the moon if you lowered your deductible and paid slightly higher monthly insurance rates.

saving money without compromising coverage

Insurance is largely a matter of risk. The more financial risk you assume through higher deductibles and lower coverage limits, the lower your monthly premium will be. But choosing low deductibles and high coverage limits offer maximum peace of mind in case you're involved in an accident. If you'd like expert help choosing the car insurance that is right for you, we're happy to provide it anytime at Insurance Professionals of Arizona at 480-981-6338