Insurance policies can seem increasingly complex at times. It’s not surprising given that there are so many factors that decide the coverage, the claims, premiums, and payments. One such aspect is the deductible.
What is a deductible? How does it work? Does it affect your auto insurance policy and premium? Can you get cheap auto insurance with a deductible? They’re all good questions – so let’s look at each of them in more detail.
What is a Deductible?
A deductible is how much you will have to pay before the insurance company steps in to honor the claim.
For example, if your insurance policy of $10,000 with a deductible of $1000, you are on the hook to pay the first $1000 of any repair costs, and the insurance company will pay the remaining $9000. The deducible has a major role in auto insurance and can affect the claim settlements. Moreover, deductibles are provided only when you take comprehensive insurance. This helps insurance companies reduce the number of claims from the insured.
Deductibles are typically classified into two types:
Compulsory Deductible
A compulsory deductible is where the insured has to pay a pre-determined amount to the insurer in order to get the remaining claim amount. However, it doesnt affect the premium for the coverage. This amount is determined based on the reliability of your vehicle. Your cars engine capacity decides how much deductible you have to pay. The amount is usually fixed. But the insurance company has the freedom to increase the deductible if your car is old.
Older cars are considered less efficient and more prone to repairs. Insurers tend to increase the deductible amount based on how old the car is. The higher the risk for the insurance company, the higher the deductible. Its vital to confirm the compulsory deductible amount before signing the auto insurance policy.
At the same time, you can ask the insurance company to reduce the deductible by showing proof of your good driving skills. A safe driver with a notable driving history and lack of claims can get away with the minimum compulsory deductible amount.
Voluntary Deductible
So what is a voluntary deductible?Its the additional amount to agree to pay from your pocket in case of a claim. A voluntary deductible is an addition to the compulsory deductible and not a substitute.
But why do people opt for voluntary deductible and agree to pay their own money? The answer is simple: Voluntary deductibles impact the premium amount. It is inversely proportional to the insurance premium. So those who want to pay less premium and get cheap insurance choose a voluntary deductible. It is a smart move if you are a good driver and don’t have a habit of claiming every minor repair or damage from the insurer. You get to save money on premium payments without paying the deductible.
You need to pay the deductible only when you file a claim for an accident, collision, or other damage. Safe drivers are less likely to be in accidents and hence don’t have to file claims. Theres no question of paying the voluntary deductible. At the same time, they can save a handsome amount on the premium price and enjoy the benefits of comprehensive insurance coverage.
Difference Between Compulsory and Voluntary Deductible
There are important differences between the two types of vehicle insurance deductibles. Here are three of the biggest:
Flexibility and Choice. A compulsory deductible gives you no choice. You have to accept it as an inherent clause of the insurance policy. The voluntary deductible is in your control. It’s up to you to add this additional deductible to the policy. You also get to choose the amount for the voluntary deductible.
Influence on Premium. The compulsory deductible makes no change in the premium amount. Even if you find cheap providers, you cannot change the premium amount by adjusting the compulsory deductible. A voluntary deductible will change the premium. You can easily lower the premium payments by adding this deductible to your insurance policy.
Expenses and Savings. There are no savings with a compulsory deductible. Neither does it change the premium, nor does it help when you file a claim. However, a voluntary deductible can help you save money by lowering the premium price. Remember that you need to improve your driving skills to avoid speeding tickets, accidents, etc., so you don’t require to file a claim and pay the deductible.
Final Words
Deductibles are pretty much unavoidable when you apply for auto insurance. The best way to deal with these is by determining if you want to include a voluntary deductible and how much to set the limit for it. Talk to insurance agents and get quotes from various insurers before choosing a policy.
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