our insurance deductible is one of the most important things your policy has. It will determine the amount you pay as a co-insurer.
What is a deductible:
according to Webster’s Dictionary; a deductible is a specified amount of money that the insured must pay before an insurance company will pay a claim. A deductible is determined by how much insured would like to pay before a claim is paid. Most people choose a $500 deductible for compensation and collision coverage. Let’s say for example, you hit a brick wall with your car and the car is damaged. A claims person or body work person will give you an estimate to fix the damage. You file the claim with your insurance company and they charge you a deductible to fix it. This means the cost of fixing your auto exceeds the deductible amount because if it is below the deductible amount, the claim will be denied.
Say the amount to fix the auto is $600 and you have a $500 dollar deductible. You pay your $500 and the insurance company picks up the rest, in this case $100. Now lets take the same scenario and say the damage was $400 and you have a $500 deductible. The claim would be denied because you do not exceed your deductible.
Typical amounts of a deductible:
Most companies start at $250 and go up to $2,500. The smaller the deductible, the more the insurance company will cover. This is why the higher deductible you choose the lower the insurance cost.
Some insureds want to raise their deductible to beat a price increase:
Lets face it, insurance companies are going to raise their prices. Some states will be different than others due to the volume of people that live there, but in California, we have a lot of people on the road at any given time. More claims the insurance company pays, the more the insurance will cost. Once an insured receives a notice in the mail about his policy going up, he calls his agent. The agent will most likely offer him an increased deductible to offset the cost. The insured, not knowing any better, agrees to this because his insurance cost is now lower. Sometimes the agent does not explain the consequences of this action to an unknowing client. He lost some coverage to beat the cost of insurance increase by raising his deductible.
How does raising your deductible give you less insurance:
If you have a $500 deductible and you raising it to $1000, you lost $500 in coverage to use (see scenario earlier in this article). You damages have to cost over $1000 now instead of over $500, so you lost $500 in coverage so you could offset a $30 every 6 month increase or annual depending on your policy.
Hopefully now you can make a better decision on how much you would like to pay for an accident.