Choosing the right car insurance can be daunting, but understanding deductibles will make it much more approachable. In theory, the concept sounds simple: your car insurance deductible is the amount of money you pay out of pocket in the event of an accident or other claim. However, every deductible is different and there are plenty of options out there. You may be debating the pros and cons of a higher deductible with a lower premium or vice versa. You might find yourself considering disappearing or vanishing deductibles, or our Elephant equivalent, the diminishing deductible.
In this post, we’ll discuss what deductibles are, how they work, and how to choose between them. Going forward, you’ll be able to make a confident, informed decision when it comes time to choose your deductible.
What is a car insurance deductible?
As mentioned above, your car insurance deductible refers to the amount of money you are required to pay if you are in an accident or need to file a claim. After you’ve paid your deductible, your insurance policy kicks in to cover the rest.
Before we move on, let’s briefly define a few other relevant terms.
- Premium: Your premium is the fee (paid monthly, quarterly, or in one lump sum) that you pay your insurance company for your coverage.
- At-fault driver: The at-fault driver is the driver responsible for an accident. Generally, this driver (or their insurance company) will be responsible for paying the largest portion of any damages caused by the accident.
- Collision coverage: Collision coverage is a form of car insurance that pays to repair or replace your vehicle in the event of a collision, either with another car or with an object. This type of insurance comes with a deductible and is (surprisingly!) optional in most states.
- Uninsured/underinsured motorist coverage: A type of car insurance coverage that helps pay for damages to your vehicle when the at-fault driver in an accident doesn’t have any or has insufficient car insurance themselves. This type of coverage comes with a deductible as well.
At this point in the blog, your head might be swimming with all of these new terms, but trust us, there is a link to deductibles in all of this.
How do deductibles work?
Let’s say you choose the average deductible cost of $500. That would then be the amount you’ll have to pay towards an accident or claim. Therefore, if your claim amount comes in at $5,500, you would pay the first $500 and your insurance would pay the remaining $5,000.
While $500 is the average deductible, choosing a higher deductible can be a good way to save money. Deductibles and premiums (See? We told you those other terms would come in handy!) are generally inversely proportional, meaning that higher deductibles equal lower premiums and vice versa. So, if you’re confident you can pay your higher deductible in the event of an accident, a lower premium can save you money in the meantime.
How should I choose my car insurance deductible?
No two drivers are the same, and you should always take your unique needs into consideration when deciding on a deductible. Choosing the car insurance policy and deductible that are right for you will depend on a wide variety of factors, which may include:
- Your driving record: How often have you been in an accident? How likely are you to need to file a claim in the future? These questions are worth answering honestly, especially if you choose a higher deductible plan.
- Your lease or lien: Some leases and liens require a specific deductible, while others leave you with more options. Be sure to double-check the fine print of your lease or lien before deciding on a deductible.
- Your budget: Can you comfortably afford the higher monthly premiums that come along with lower deductible plans? If not, you may want to consider a higher deductible plan instead. It’s always important to have a thorough understanding of your financial situation before deciding which insurance plan to purchase.
- The type of coverage you need: Not all types of car insurance plans come with deductibles. If you’re just looking for the minimum insurance required by your state, that is liability insurance and does not require a deductible. However, comprehensive coverage, collision coverage, and mechanical breakdown insurance all do.
Other types of deductibles
In your deductible discovery journey, it’s also a good idea to consider less common types of deductibles, such as Elephant’s diminishing deductible. This option is also sometimes referred to as a disappearing deductible or a vanishing deductible. The name and the exact details of this kind of deductible will vary depending on the insurance company.
Elephant’s diminishing deductible is an optional coverage feature that you can add on to your vehicle’s collision deductible to reduce your out-of-pocket expenses if you’re in an accident. If you select a diminishing deductible, your deductible is immediately decreased and continues to decrease substantially every term that you remain accident-free.
The reductions break down like this: if you have a six-month policy, your deductible will be reduced by $50 immediately, and again every term thereafter that you qualify. If you have a yearly policy, that number jumps to $100. The maximum amount your deductible can be reduced, regardless of whether your policy is for a year or for six months, is $500. Depending on your starting deductible, this could mean reducing your deductible down to zero!
Finally, with a diminishing deductible, your deductible cost won’t reset even if you do get in an accident. It won’t go down for the next term, but it won’t go back up, either. It will start decreasing again upon the next full term that you stay accident-free.
Speaking with an experienced car insurance agent can help you weigh the pros and cons of every plan and deductible so you can be sure to choose what’s best for you.
When do I have to pay my car insurance deductible?
In short, you have to pay your deductible almost any time you file a claim with your car insurance company. Your deductible is the agreed-upon amount you’ll pay in the event of any accident or claim. This includes simple situations like backing into a signpost and needing to pay for repairs all the way up to accidents where you are at fault.
A common question, however, is whether you’ll need to pay your deductible if you are in an accident and are not the at-fault driver. Unfortunately, the answer here is not particularly clear-cut. In situations like this, it depends.
If you are in an accident that you did not cause, the other driver (the at-fault driver) can pay for your repairs through their insurance company, which might take a while. On the other hand, if you have collision coverage, you have the option to file a claim with your insurer, pay your deductible, and seek reimbursement through the at-fault driver’s insurance company through a process called subrogation.
If the at-fault driver is uninsured, however, you may need to pay the deductible on your uninsured/underinsured motorist coverage before your policy will cover your repairs. Finally, if both you and the other driver share some level of responsibility for the accident, you may need to pay all or part of your deductible.
Elephant is here to help
Hopefully you now have a better understanding of all the ins and outs of car insurance deductibles. We’ve gone over what deductibles are, how they affect your premiums, and when you need to pay them. We’ve also defined some important terms, discussed how to decide which deductible is right for you, and explained Elephant’s unique diminishing deductible.
If you were just looking for a general overview of deductibles, then this might be everything you need, but if you are looking to add or change your deductible you can do so by going to your account. If you are looking to switch carriers and join the Elephant family, then you can get a quote today. We can help you find what deductible is right for you and create a policy that fits your needs.