What is an auto insurance deductible, and how does it work

Why is it important?

When contracting an auto insurance policy, you will discover that the deductible is one of the most important concepts. Choosing the right one is essential to have a policy that can provide you with security and peace of mind for a fair and reasonable price.

• But what is the deductible?

The deductible is the amount of money you must pay to your insurer in case of an accident or loss.

• How does it work?

Imagine that an insured car has been in an accident, and therefore the insurance company will take care of it. The total damage is $10,000, and the policy has a contracted deductible of $5,000.

Then, the car will be repaired, and of the total repair expenses, you will have to pay $5,000 corresponding to the deductible, while the insurance company covers the rest of the costs.

• What happens if the damage to the same car is more significant? 

The good news, the deductible will not change. If the amount of the loss is $50,000, you will only have to pay the $5,000 deductible, and the rest of the expenses will be covered by the policy.

On the other hand, if the repair cost is less than the deductible, the deductible will not change either, i.e., if the damage is $3,000, you would have to pay the $5,000 deductible for its repair.

The deductible can be a defined amount, such as the $5,000 in the example above, or it can be a % of the value of the insured car, for example, 5%. In either option, you choose what deductible your policy will have. But then, which deductible is more convenient for you? That depends on you and your needs, but knowing the advantages and disadvantages of a high and a low deductible can help you make a better decision.

• A high deductible

Choosing a high deductible will help you lower the cost of your policy, allowing you to purchase additional coverages that increase your level of protection without breaking your budget, such as Occupant Medical Expenses.

However, a high deductible also means that in case of an event, the amount that you will have to absorb will be higher; you will also have the risk that in case you suffer a minor accident, the cost of your deductible will be higher than the cost of the repair, and you will have to pay for it on your own.

• A low deductible

The lower the deductible, the more likely it is that a minor accident, such as a "tallón" or a "recargón," can be covered by your policy; likewise, the amount in case of an accident you will be responsible for will be less.

However, by reducing your deductible, the cost of insurance will increase. It would help if you considered that a lower deductible could increase the number of events your policy will cover, so having more expenses is likely to increase the cost in the long run.

Which deductible is best for me?

To choose the best deductible, think about what you need. Do you want protection against all the accidents you could have? Then a broad coverage with a low deductible will be the best, or do you prefer to cover your car against more difficult situations? Then a wide range with a high deductible is better.

Keep in mind that other factors can raise or lower the cost of your policy. Still, the deductible will always be one of the most important elements to define your insurance premium.