When you sign up for car insurance, one of the major things you have to decide is how much of a deductible you want to pay. You may ask yourself, what is a deductible?
When you get into a car accident your car insurance company covers the cost to repair your car. But you are required to pay a certain amount of the cost. This amount is called a deductible. When you are choosing your insurance provider, you can choose how much of a deductible you would like. You can choose anywhere from $100 to $1000.
So How Does A Deductible Work?
Let’s say you recently got in a car accident and the total bill is $2000. Because you have auto insurance, the insurance company will pay for most of the repair costs but you are responsible for paying your deductible. If your deductible is set at $500, you pay the $500 out of pocket and the insurance company will cover the remaining costs of $1500.
Is it better to have a higher or lower deductible?
Both options have benefits. A higher deductible means you will have lower monthly payments, as the insurance company knows you will cover a significant amount of costs if you get in an accident. If you get in an accident and the cost of your repairs is only $500 and your deductible is $1000, the insurance company does not have to pay anything out of pocket.
If you have a very low deductible, you end up paying a smaller amount out of pocket if you get in an accident but it may come with a higher monthly cost. This means you will only have to pay a small amount of money out of your pocket if you get in an accident and most of the bill will be covered by your insurance provider.
When choosing your deductible, you want to make the decision based on your driving record and financial situation. If you never get in accidents and have a safe driving record, you can get away with a higher deductible. But if you have a history of accidents you may want to get a lower deductible so you do not end up paying a ton of money out of you own pocket.