If you do not fully understand how insurance works, it might be hard for you to make the right decisions about your auto insurance coverage. One thing that is really important to understand with any type of insurance is the concept of a deductible. If you do not understand what this is or how it works, it is crucial for you to gain an understanding before you buy a policy, as it could affect you in several ways.
1. What it is
When it comes to insurance, the word deductible is very common, as you will find that most types of insurance policies have deductibles. The purpose of a deductible is to hold a policyholder responsible for paying a portion of a claim that he or she files. Because of this, the deductible on your policy refers to the amount of money you are responsible for any time you end up filing a claim on your policy. This amount is generally the only amount you must pay when you file a claim, and the insurance company is then responsible for paying any remaining balance of the claim.
2. An example of how it works
To understand deductibles, it is best to use an illustration. Assume you have a $1,000 deductible on your auto insurance policy. If you wreck your car and end up with $5,000 of damages, you will have to pay the deductible amount of $1,000 if you file a claim. After paying this amount, your insurance policy will pay the remaining $4,000. If you did not have insurance, you would be responsible for the full $5,000.
3. Choosing your deductibles
One important thing to know about deductibles is that you can choose them, and with auto insurance, you may have the option of choosing a different one for both your collision coverage and your comprehensive coverage. You are free to choose any amount for this, but the amount you select will affect the price you pay for coverage. A deductible of $250 is probably the lowest amount you can select and choosing this will result in paying higher premiums. A $1,000 deductible is considered a high amount to choose but choosing it will result in saving money on your policy costs.
Hopefully, you understand the concept of deductibles now, as knowing this will help purchase the right auto insurance policy for your needs. If you have questions, talk to an auto insurance agency near you.