Cover Drivers

When it comes to car insurance and any kind of insurance (health, life, home, etc) for that matter, a deductible is the amount of money that you (the insured party) has to pay before your insurance company policy kicks in and they begin to pay their share.

Car insurance companies have deductibles featured in their policies so that they will avoid paying out benefits on every small claim that happens. Not only does this save them money, but they also don’t have the paperwork or hassle dealing with 5,000 cars a day getting dented by a basketball, paint getting scratched, a tail light going out, etc. Most insurance company have policies that include a $500 deductible — that means that any repairs under $500, you pay in their entirety.

The amount you pay on claims though overtime “go toward” your deductible. If you have a car accident and have $1,000 in damages, you’ll pay $500 and the insurance company will pay the remaining $500. If in the same calendar year you get into another accident and it costs another $1,000 to repair your car, your insurance company will pay the entire $2,000 as you have already “met the deductible.”

The size of your deductible is always in proportion with the amount of your premium (the amount you pay to have the car insurance policy). That means to have a low deductible, say $250 or even $0, meaning you pay out very little or nothing in case of an accident, you will pay much higher premiums on a regular basis. If you want cheaper insurance premiums, you will have to agree to a higher deductible like $1,000 or $1,500. The pros and cons to this are obvious — you pay less all the time and take the risk of paying a lot at once, or you pay more all the time and you never have to worry about a huge windfall payment if you do get into an accident.

It totally depends on your finances and your budget whether or not you want to have a low deductible and high premiums, or low premiums and a high deductible. It also depends on your driving history — if you’ve only been driving for 5 years and you’ve had 3 accidents already, you might want to bite the bullet and pay a little more each month for lower deductibles. On the other hand, if you’re a retired 60-year old and have only been in an accident once in your life, low premiums with high deductibles should be very appealing to you.