When obtaining a car insurance quote, two numbers make a significant difference to the premium: the collision deductible and the comprehensive deductible.
Definition of “deductible”
In the language of insurance, a “deductible” is the amount deducted from the insurance benefit. It is precisely the amount which the policy-holder pays for that claim. It is written in the insurance policy – it is not negotiated at the time of the claim.
Here are some Tips to keep in mind.
The effect on the claim. Here is a simple example. A car is damaged in a collision. The repairs cost $1,000. The policy includes a collision deductible amount of $200. The car’s owner pays $200, and the insurance company pays $800.
The effect on the premium. The higher the deductible, the lower the premium. The reason is straight-forward: in case of a claim, the insurance company will have a lower repair cost, because the policy-holder pays more.
When the deductible is not a deductible. Generally, in the case of a “total write-off”, the insurance company waives the deductible. In return, the insurance company will take possession of the vehicle – or its remains – to realize the scrap value.
What the policy-holder should consider:
Any form of insurance involves sharing a financial risk with others. However, this also involves striking a balance between the certain cost of regularly paying a premium for coverage, and the uncertain gain of having the insurance company pay compensation for a claim.
If the policy-holder believes that the risk of making a claim is low and believes that he or she can cover a high deductible, then choosing a high deductible is rewarded by a lower premium cost.
If the policy-holder cannot afford a high deductible, then it may be wiser to pay a higher premium.
What the insurance company has already considered:
The insurance company considers that the driver’s record is an indicator of the likelihood of a collision. It considers the vehicle, both for the cost of repairs and the likelihood of theft. It considers the driver’s neighborhood – are there many thefts? Floods? Windshield damage due to falling branches or to hail?
Each state has rules governing the minimum and maximum deductible amounts permitted on a policy. A car that is leased, or is being financed, will be required to have comprehensive coverage. This protects the leasing company or the bank.
When comprehensive coverage is optional
If the owner of a fully-paid vehicle decides that comprehensive coverage is not worth paying, generally that is a perfectly valid decision. The owner then takes the risk of losing the whole vehicle – for example, if it is stolen – but saves the cost of this part of the insurance premium. Effectively, the comprehensive deductible is 100% of the cost of repair or replacement.
The wisdom of this strategy is in question for newer or more expensive vehicles. It is more common for the owner of an older car which is in poor condition to omit comprehensive coverage.
What the policy-holder should do
In order to determine a course of action, the policy-holder should obtain car insurance quotes with different deductibles. The policy-holder may then compare the premiums being quoted, and decide where to balance the deductibles against the premiums.
Policy-holders may obtain car insurance quotes through many web-sites; for example, carinsurancequoter.com facilitates quotes for free and with no obligation.
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