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Understanding Your Auto Insurance Deductible

If you’ve already experienced a claim, you’ve likely learned how your deductible works first hand. For those who haven’t, it can cause confusion about just what a deductible is and who pays for it.

What a deductible is

A deductible is the amount of money you (the named insured on the policy) pays out of pocket for the cost of damages before the insurance company pays. Think of it as the part of a loss you have chosen to self-insure. Here’s an example: You chose a $500 deductible when you purchased your auto policy. This means that you have agreed to absorb the first $500 in expenses as a result of each loss occurrence you suffer. Let’s look at two scenarios. Please keep in mind these scenarios are based on general information. Your claim results may differ depending on your unique situation, such as policy language, deductible amounts, policy limits, and coverage invoked due to the type of loss.
  • SCENARIO 1: Suppose you suffer a covered loss with total damage to your covered auto totaling $1,000. After discussing and settling the claim with your claims representative, you take your car to the garage. When the car is ready to pick up, the garage presents you with a bill for $1,000. You will pay the garage $500 directly. Your insurance company will pay the remaining balance of $500 to the garage.
  • SCENARIO 2: In this scenario, suppose you suffer a covered loss with total damage to your covered auto totaling $500. Since you have chosen a $500 deductible, you will be responsible for the expenses. You should not typically expect to receive any payment from your insurance company in this situation.

What a deductible isn’t

Now that we have an understanding of what a deductible is and how it works, let’s look at a few common misconceptions about deductibles.
  • It’s not part of the premium. When you pay your insurance premium, you aren’t contributing to a savings account against future losses. While the amount of your deductible can raise or lower your premium, deductible and premium are two different things.
  • It’s not something that the insurance company pays. The named insured on the policy is responsible for paying the deductible amount.
  • It’s not a cost that follows the driver. This means that even if someone else was driving your car and got into an accident, your insurance company would handle the claim and you would be responsible for your policy deductible.
  • It’s not the same as a health insurance deductible. Deductibles for health insurance policies typically cover an entire 12 months, meaning you would only pay up to the amount of your deductible (i.e., meet your deductible) and then pay no more towards it for the remainder of that policy. However, an auto insurance deductible applies "per occurrence." This means you are responsible for your full deductible amount each time you suffer a covered loss.
As with all things insurance, it’s best to discuss deductibles and how they apply in your situation with a local independent insurance agent. Your local independent agent has the knowledge and experience to answer frequently asked questions about deductibles and calculate cost savings for you depending on the deducible amount you choose. Take time now to fully understand your insurance policy and all out-of-pocket expenses you may face. Contact your agent today!