What is a Deductible?

When you are looking into insurance prices you may notice two numbers - your premium and your deductible. The amount you pay each year is your premium. Drivers across America pay around $750 per year for their premium[1]; however, you may pay much more or much less than this depending on several factors. Another number you may come across is your deductible, or you excess. This is the amount you pay only if you need to make a claim. It is important to read through each policy to see what the deductible amount is.

Car Insurance Deductibles

Deductibles are standard on all types of insurance, from house coverage to travel insurance to high risk driver coverage. The good news about your deductible is that most providers let you play around with how much you choose to pay. While there is usually a compulsory excess of around $100 (this may be higher if you are a new driver), most providers offer their customers the option of a voluntary deductible. You can choose a higher deductible, usually upwards of $3000 as a way to save on your premium.

Almost all providers operate under the rules that a higher deductible equates to a lower premium. Even increasing your premium by $500 can save you as much as 40 percent on your car insurance policy. However, you want to find that perfect balance between your premium and your deductible amount which will be different for every driver.

If you have never been in an accident, do not drive often and have a bit of savings for a rainy day, then you may feel comfortable choosing a deductible as much as $1000; however, if you are strapped for cash, have made claims in the past and are constantly on the road (thus increasing your risk of an accident), then a lower deductible is probably a good idea. New drivers should opt for a lower deductible as often they will not have $1000-$3000 just lying around. Furthermore, if you drive an older car choosing a deductible that is more than the car simply doesn't make sense.

Choosing your Deductible

Consider several factors when choosing your deductible including how much your car is worth, what coverage you have purchased and what your financial situation is like. While it may make sense on paper to choose a deductible as high as $3000, you need to think about what this means if you do need to make a claim. As long as you remain claim and accident free then you can expect much lower rates on your premium. However, you have to remember that you will need to pay this amount in order to get any financial assistance from your insurance provider.

Many people cannot afford to pay an additional $3000 to their insurance provider if they are in a serious accident. In fact, most people cannot. This is why most drivers choose a premium between $100 and $500. This is a much more affordable amount to pay and will not set your credit card into a tailspin if you are in an accident. You can easily pay the premium and get the assistance you need during this already stressful time.

When it comes to selecting your car insurance there are a number of things to consider. Choosing your provider, your limits and your coverage types are usually standard but make sure you always play around with your deductible. Select a deductible amount that offers you a discount and ensures that you feel comfortable on the roads. If you are in an accident you want to be sure that you can easily pay your deductible without dipping into the red.

[1] http://www.iii.org/facts_statistics/auto-insurance.html 04/28/2011

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