How Auto Insurance Deductibles Affect Rates

Auto insurance deductibles can save both you and your insurance company money. Therefore, when you are looking to save the most money you can on insurance costs, the answers to some basic questions may help you decide on a deductible that works best for you.

How Does a Deductible Work?

A deductible is the amount of money you pay out of your own pocket before your auto insurance company pays the claim. Deductibles range in amount, but paying a higher deductible generally lowers your insurance rate. Keep in mind though that if you carry both collision and comprehensive coverage on your vehicle, each will have its own deductible.

How Does a Deductible Save You Money?

Raising your auto insurance deductible saves you money by lowering the insurance premium you pay. Deductibles lower the risk to insurance companies because you are taking on more of the risk.

How much you save by raising your deductible varies by insurer; therefore, you may want to consider how much risk you want to take. But since you must be able to afford to pay the deductible you choose if you ever need to file a claim, a high deductible may not always be the way to go.

Like an insurance company that bases the premium rate it charges on the amount of risk you pose, you may want to do some risk assessment of your own. It can help you to decide on a deductible amount by calculating how many years it will take you to get back the money you would pay out in high deductibles if you don't file any claims.

With a lower deductible, you pay a higher premium rate, but the rate may not be all that much higher. However, you can save money by having better coverage in the event you need to file a claim. For instance, if damage to your vehicle following a mishap is $1,500, paying a $100 deductible in comparison to a $1,000 deductible saves you $900 that you would have to pay on the repair bill.

How Does a Deductible Lower the Risk to the Insurer?

Although the amount of money the insurance company pays when you file a claim is reduced by the amount of the deductible you pay, insurers also save in other ways. When you have to pay a high deductible, you are less likely to file an insurance claim, especially if the cost of the damage to your vehicle is less than or not much more than the deductible you pay.

When you file fewer claims, you are less risk to the insurance company, which charges you a lower rate in return. Insurance companies do this since they earn more profit if they don't have to pay out a lot of claims. When paying a deductible stops you from filing a claim, the insurance company comes out ahead.

For additional information, contact an insurance agency like Independent Insurance Associates Inc.