How to Understand Car Insurance Deductibles

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Car insurance deductible refers to the amount of money a person must pay out of pocket before the insurance company begins paying for repairs or medical bills on a claim. As a general rule, policies with low deductibles have higher premiums while those with high deductibles have lower premiums. There are two parts to understanding your car deductible: Part 1 explains how to choose the right deductible for you and Part 2 helps you calculate what you pay and what your insurance covers.

Part 1 of 2: How to choose the right deductible

While you cannot predict the future to see if an accident is on your horizon, you can use your disposable income as a guide to choosing the right deductible for your needs.
Step 1: Take your bank statements for the past year and calculate your average balance. To do this, add together the average balance of each month, then divide that number by 12.
Step 2: Add and divide. Add your bills together the whole past year and divide that number by 12.
Step 3: Subtract the number in Step 2 from Step 1. This is your average monthly disposable income, or how much is usually leftover after paying for essentials.
Knowing your average amount available to spend helps to determine how much you are willing to pay on a deductible if you get in an accident. This is a subjective decision. You do not, however, want a deductible that is higher than your disposable income, if possible.
  • Tip: It’s more difficult to estimate how much insurance will pay on medical bills because some health issues caused by an accident may be ongoing.
Generally, you pay the deductible and the insurance pays the remainder up to a certain maximum amount indicated on your insurance policy. If you do not know how much your insurance company can pay toward medical bills, call your insurance agent.

Part 2 of 2: Calculate what you pay and what your insurance covers after an accident for repairs

Step 1: Get an estimate for the cost of repairs to your vehicle. Many insurance companies provide you with mechanics you can call while other companies arrange getting this estimate entirely for you.
If the cost of repairs is less than your deductible, you will pay for all of it and the insurance company none. If the repairs are higher than your deductible, proceed to the next step.
Step 2: Subtract the amount of your deductible from the amount to repair your car. That is how much your insurance will pay, and you pay the amount of your deductible.
Understanding car deductibles is not a complicated process, but ensuring you have the best insurance rates around is not always easy. As changes occur in the industry or in your driving record, your premiums may change as well.