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Deductibles are part of every auto insurance policy, which applies to your vehicle’s physical damage coverage. If there is a claim, for example, the deductible is the amount you pay your insurance company BEFORE they pay. The deductibles vary greatly in most cases from $0 to $5,000 for both comprehensive and collision deductibles. The deductibles you choose have an inverse relationship with your premium.

If you choose a zero-dollar deductible, you’re saying you will pay nothing in the event of a claim and your insurance company will pay all of it. This most likely will spike your monthly premiums because you will not pay anything in the event of an accident—low deductible = high monthly premium (inverse relationship).

On the flip side, if you have the ability to carry a $1,000 deductible, you’re assuming $1,000 of risk from a claim and the insurer will most likely lower your monthly premium to counterbalance that risk — high-deductible = lower monthly premium (again, inverse relationship).

Let’s explore a real-world scenario with a $1,000 deductible on your policy. You go to pick up your friend and their new job and accidentally back into the loading dock of the warehouse by the exit door. You damage your car in the process and end up with $3,500 in damage. Since the deductible is $1,000, you agreed to pay that first. Now, the insurance company steps in and pays the remaining $2,500 of damage per your policy.

What Is The Right Deductible?

Picking the right deductible depends on your saving habits. Can you afford to pay $1,000 or keep that money on reserve in the event of an accident? If so, it might be good to choose a $1,000 deductible upfront and enjoy lower monthly costs every month.

Another important fact about deductibles is if the damage total falls under your deductible, you will be fully responsible because your deductible was not met. For example, let’s say you backed into the warehouse loading dock just slightly and dented your bumper and the damages came to $600. $600 is underneath your $1,000 deductible so you agree to pay up to the deductible before the insurance company steps in. You will be paying $600 in total.

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