Do the auto insurance deductibles baffle you?

Auto insurance deductible often confuses the vehicle owners. Most drivers think that every time they get involved in an accident, they have to pay for their insurance deductible. However, that's not the case. You don't need to pay the deductible every time a claim is forwarded to your insurance company. Read along to know how your auto insurance deductible works and when you will need to dole out the amount from your own pocket.

What is auto insurance deductible?

Auto insurance deductible is the amount that the vehicle owner needs to pay before his auto insurer pays for the claim. The insurer needs to choose the deductible amount in the initial phase only, when he buys the policy. For example, if you have opted for a $500 deductible for your auto insurance plan and your claim amount after an accident is $2000, the insurer will pay for $1500 while you pay the rest, i.e. the deductible amount of $500.

Why are deductibles applied?

Deductibles are applied to insurance plans to discourage the policy holders from making trivial claims which they can pay themselves. It puts restriction on coverage so that the insurer would be liable for the reasonable larger risks and wouldn't need to pay for the minor damages. Deductibles ensure that the insured would pay for the small damages without making an auto insurance claim, since they'll need to bear the cost of the deductible otherwise. This makes sense since no one would want to spend more dollars if the cost of repair is less than the deductible amount.

How deductible affect the cost of auto insurance?

Deductibles limit the risks that are borne by the insurers. As a result, it evidently affects the cost of auto insurance. Since insurers need to compensate for any damage which exceeds the deductible amount, a low deductible would mean that the number of claims will be high. Insurers would thus need to plan resources and time to shell out compensations for small claims. Consequently, they would charge the policyholders in the form of raised premiums. Individuals opting for a higher deductible amount can enjoy lower premium rates for auto insurance coverage.

When is deductible charged and when it's not?

Just like it has been pointed out earlier, every single time the vehicle owner may not need to pay the deductible. Read along to know when deductible is charged and when it's not.

1. The insured is 'at-fault' during an accident - Vehicle owners who are deemed completely 'at-fault' have to pay for their deductible, when a claim is forwarded to their auto insurer.
2. The insured is not 'at-fault' during an accident - The other party who is at-fault will pay for the damages. If you are not 'at-fault', you won't need to pay your deductible. However, you may have to pay the deductible if your insurer can't get the other party to pay for the damages due to lack of evidence pointing out that he's at-fault for the accident.
3. The insured is partially 'at-fault' during an accident - Insurance companies follow their set of Fault Determination Rules. The partial faults are rated in percentage and have to pay accordingly. If the insured is found to be 50% at-fault during an accident, he or she would need to pay 50 percent or half of the deductible amount, before the insurer pays for the rest.
4. When vehicle is stolen or becomes subject to vandalism - Only comprehensive coverage pays for this kind of losses. However, before the coverage comes into effect for his stolen or vandalized vehicle, the insured would need to pay the deductible.

Choosing a higher deductible would definitely bring down the auto insurance costs. However, the vehicle owner would need to save that amount of money, since he'll have to pay that out-of-pocket during any claim.