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The terminologies surrounding car insurance can be a bit confusing if you don’t know what they mean. One of the most important words you will come across is “deductible”. Even if you don’t understand much, this is one term that is absolutely crucial to choosing your car insurance.
Simply put, deductible is the amount you have to pay in case of an accident. However, it is much more complex than this and your car insurance strategy will depend to a large extent on how much you can actually afford.
how it works
Deductible is the amount you pay towards the insurance company in case of an accident. For example, if you have a $500 deductible and the accident damages $1,500, you would pay the first $500 and the insurance company would pay the remaining $1,000. Similarly, if your deductible was $1,000 and the damages were only $800, you would pay the whole thing.
How the deductible affects your rates
Car insurance requires that you pay a specific amount per month or year. This is your monthly rate and it will generally not change within a year, unless you are involved in an accident. The amount you pay on a monthly basis will depend on how much of a deductible you want to pay, or how much upfront cost you are willing to pay in the event of an accident.
The most common amounts for deductibles in car insurance are $100, $250, $500 and $1,000, although different companies may offer other options. The higher the deductible, or the amount you’ll pay in the event of an accident, the lower your monthly rates will be. Therefore, you’ll pay higher monthly rates if you opt for the lowest deductible, $100, which means the insurance company is responsible for almost all of the cost.
Which option you choose (high deductible/low rate or low deductible/high rate) will depend on what you can afford and how often you expect to need your insurance. If you’re likely to have some type of accident every few months, you’ll probably want to pay the minimum amount and let the insurance company cover most of the costs. For safe drivers with better driving records, it’s easiest to go with a higher deductible and pay lower rates instead.
boundaries
Each insurance company has a cap on the amount that can be paid. The rates you have each month will also affect this, so you can decide how high you want to go over the max without needing to pay a lot per month. Most drivers never need a higher limit.
How does the limit affect your deductible? Well, you’re responsible for paying your deductible, of course, but once the insurance company has paid up to the limit, you’ll need to pay any costs over that.
To give you a quick example, let’s say your deductible is $500, the limit is $10,000 and the cost of damages is $12,000. You will pay the first $500. The insurance company will then pay their $10,000 and you will be responsible for the remaining $1,500.
Yours car insurance No need to get confused. Take the time to go over the numbers and find out how much you will be able to pay out of pocket in case of an accident and how much you can pay on a monthly basis. A little research can go a long way. It’s also helpful to talk to a car insurance agent, who can give you a good idea of what the standard would be for the age of your car and your driving experience.
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