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Understand your deductible options. We'll help you choose the best one for you.
The definition of a deductible can vary based on what type of insurance you are referring to. Even between your home and auto insurance, what defines your deductible varies. For your auto insurance, a deductible is defined as your portion of the financial responsibility for repairs to your vehicle. Although this is a fairly straightforward way to describe your deductible, there are some individual details that can help save you money on your car insurance. Let’s explore.
A deductible is what you pay after an accident and filing an auto insurance claim — the remainder is covered by your insurance company. Let’s look at an example. Say you back into a fire hydrant and cause $3,000 worth of damage to your vehicle. In order to get the repairs handled through your insurance company you would have to file a collision claim. If you have a $500 deductible and file a claim with your insurance company, your insurer would pay the remaining $2,500.
A deductible, however, is only applicable to specific insurance coverage options. Namely, a deductible doesn’t apply to your liability insurance. The liability coverage of your car insurance covers you for damage you cause to other people or their property. If you are at-fault for an accident, your liability insurance would pay for the bodily injury and property damage up to your policy limit.
Your collision coverage is pretty accurately named; it specifies protection from accidents that occur when you collide with something. For example, if you hit a guardrail, a wall, or another vehicle. Unlike your liability coverage, your collision coverage does not factor in fault. Meaning, as long as you have the coverage and the damage occurred from a covered loss, you will receive compensation from your insurance company for your loss. Your collision deductible refers to what you pay.
The name “comprehensive” isn’t as descriptive as collision coverage is. Basically, comprehensive insurance coverage is designed to fill in any coverage gaps left by your collision coverage. Meaning, it covers things “other than collision.” Sometimes called OTC, comprehensive coverage handles things like vandalism, theft, weather, and animal-related events. Like your collision coverage, you do not need to be at-fault or not-at-fault to use this coverage. As long as the damage occurs in a way that is covered by your insurance company, you will receive a claim payout (minus your deductible).
Uninsured property damage coverage, or UMPD, closely mirrors your collision coverage. It provides physical coverage to your vehicle if you’re in a not-at-fault accident in which the other driver either does not have insurance, or the limits on his liability coverage is exhausted before your vehicle can be fully repaired. This is what is meant by the term uninsured motorist or underinsured motorist.
While your insurance agent might advise you that UMPD and collision are the same and thus you only need one, you should consider how these types of claims can affect your rate. A collision claim is usually rated on your premium as an at-fault accident — meaning, it will cause your premium to increase. However, a UMPD claim has more variance than a collision claim in terms of a premium increase. We recommend speaking with your insurance company if you’re considering dropping this coverage to see how a UMPD claim would be rated. If your insurance company would consider a UMPD claim to be the same as a collision claim, you probably don’t need this coverage.
Because comprehensive and collision are not required by law, there are times when it will make financial sense not to pay for these coverages. Namely, if the value of your vehicle isn't worth the premium it costs. As a general rule of thumb in the insurance world, if your vehicle is worth less than $4,000, you do not need physical coverage. We recommend getting an estimate for your vehicle using online resources such as Kelley Blue Book and NADA online.
If you determine that you do not need comprehensive and collision coverage, below are some rates for a liability-only policy.
For our liability-only policy, we selected limits of 50/100/50. However, you are only required to carry above your state's minimum requirements. This is not something we typically recommend as the coverages can be quite low depending on your state. If the value of damage you cause after an accident exceeds your coverage, you are responsible for the remainder. Because of this, we generally recommend 50/100/50 or higher for your liability only coverages. Below, you can see what this would look like on a monthly billing plan as well.
While you do have some flexibility in terms of your choice of deductible, $500 is pretty standard. So, in our efforts to determine which insurance company has the cheapest premium with a $500 deductible, we surveyed some top insurance companies across the US with this deductible selected. Here are the results.
As you can see, with all metrics constant, USAA is the cheapest insurance company surveyed. Consider, however, this is only a reflection of our standard user profile which might not be reflective of you. Use our data as a starting point and try to look at as many companies as possible.
If you want to think about how a $500 deductible would affect your monthly car insurance bill, see below. On average, a $500 deductible will cost you an average of $125 per month.
While many drivers chose a $500 deductible, $1,000 car insurance deductibles are still pretty common. Just like we did with our $500 deductible, we surveyed some top insurance companies with our preferred deductible of a $1,000. Here are the results.
The average annual premium for a car insurance policy with a $1,000 deductible is $1,337, with USAA again being the cheapest company. Compared to a $500 deductible, this will save you over $170 annually on your car insurance. This is because car insurance deductibles and premiums are inversely related. Meaning, if you lower your deductible, you raise your premium. This is a good cost cutting solution if you're looking to lower your monthly premium. Displayed below, you can see how much a $1,000 deductible will set you back on a monthly basis.
As you can see, Nationwide is still the cheapest insurance company. Consider, however, how the premiums vary based on how your deductible changes. Which brings us to our next topic; how your premium and deductible are related.
As we’ve demonstrated, your premium will be lower if you have a high deductible. This is because of the nature of car insurance deductibles — they represent your insurance company’s portion of responsibility for a claim. So, by raising your deductible you lower what your insurance company would have to pay in the event of an accident. Below you can seen an average of the data we presented.
Average Annual Premium by Coverage Level
|Coverage Level||Average Annual Premium|
Because there is some premium variance based on the deductible you chose, you should consider your deductible amount carefully. Here are some things to consider when thinking about your car insurance deductible.
If you’re leasing or have a loan for your vehicle, you might not have an option when it comes to your deductible. Because of the way your lease and loan agreements are designed, you have a 3rd party with an invested interest in your vehicle. Meaning, if anything happens to your vehicle, they’re going to want it repaired. By having a high deductible, they fear you might not be able to pay it. Thus, most liens and lease agreements require a $500 deductible or lower.
If you’re deciding between a $500 deductible versus a $1,000 (or any other options), you should consider how frequently you will be using these coverages. This would refer to having a loan or lease on your vehicle which would require you maintaining the vehicle in near perfect condition. Or it could mean having someone on your policy who is less experienced behind the wheel, i.e., teenagers. If you’re worried about your teen damaging your vehicle often, as teens do, a lower deductible might help settle your fears about future expenses.
Car insurance has an annoying habit of working as a double-edged sword: the more you use it, the more expensive it is. This is especially true with your collision deductible. Insurance companies often see collision claims as at-fault accidents, which, in 2017, raised premiums by an average of 43% per year. While it can vary by state, most at-fault accidents will on your insurance record for 3 years. Meaning, your premium will be increased for 3 years following any at-fault claim. This can refer to a liability claim or collision.
|Year After Accident||Average Annual Premium|
|0 - No Accident||$1,427|
|1 Year Later||$2,114|
|2 Years Later||$2,801|
|3 Years Later||$3,488|
As you can see, filing an at-fault where the damages are greater than $2,000 will raise your premium an average of $611 a year or $1,833 for the full 3 years. Because of this, insurance experts encourage having a high deductible as it discourages you from using it. You should use your collision coverage, however, if you suffer a catastrophic loss where the value of the premium increase plus your deductible is less than the cost of repairs. For example, if you total your vehicle.
Even if you’re not sure what amount of deductible you want, you can shop rates from hundreds of different car insurance companies with us here. Get started today.
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