If you’ve applied for insurance with an auto insurer, you’re likely going over the details of your possible policy with great attention to detail. Upon coming across the amount of your deductible, you might be wondering how this number is calculated and how it works, especially if you are a new driver.
This cost is connected to your premium as such that the higher your deductible, the lower your monthly payment, and vice versa. If you are considering adjusting these amounts, you’ll need to consider several factors to ensure you are not left with hefty expenses if a claim needs to be filed.
Ready to learn more about how an auto insurance deductible works? Here is our comprehensive guide on the subject.
Defining a Deductible
A deductible is the agreed amount between you and your insurer. It indicates what you will pay out of pocket, should you make a claim. Ideally, this is a cost you can easily afford to pay after an accident or similar situation leaves your vehicle in disrepair. Usually ranging from $250 to $1,000, a deductible will cover some of the expenses of restoration, while the remaining amount will be paid out by your insurance company.
Deciding on a Deductible
As the policyholder, you get to choose the deductible for your auto insurance. You should take into account your vehicle’s value, your monthly budget (for the premium) and emergency funds, as well as what kind of driver you are in terms of financial risk. In this decision, you will select how much financial responsibility you are willing to take on, should something happen when you are driving.
The Different Types of Deductibles
If you have opted to include additional coverage options in your policy, you will likely have different types of deductibles. This includes alternatives like specified or all perils, comprehensive, and/or collision coverage. Liability insurance, which is mandatory in Ontario, does not have a deductible.
How it Works
If you’re in an accident or an unforeseen incident happens with your vehicle, your insurer will first need to confirm the total cost of repairs. You might choose to take your vehicle to a local mechanic, or if your insurance company has a preferred list of garages they work with, you could pick one of them. With the first option, you will receive a claims check for the cost less your co-payment. With the second, your insurer will pay the repair shop directly and you will be responsible for paying your deductible upon pickup.
In some circumstances, such as a no-fault accident, you will not be required to pay your deductible. If you are making a claim under an additional coverage option, such as comprehensive insurance, you will be required to pay that amount no matter what. It is also worth noting that for any amount less than your deductible, you assume responsibility and the costs. For example, if you have a driving mishap and the estimated repair costs come out to $800 while the deductible is $1,000, you will be responsible for the full cost.
The Purpose of Deductibles
Most car insurance companies use deductibles for two reasons. The first is to ensure their clients are not making frivolous claims for damages, such as chipped paint. The other is to ensure premiums can be kept at a reasonable amount, giving the insurer more money to pay out in the event that you need it.
Still curious about how an auto insurance deductible works? At Tanner Insurance, we customize our policies to suit your needs. We’re happy to answer questions about your deductible and help you decide on one that works for you. To learn more about our services, don’t hesitate to reach out to us.