How do Car-Insurance Deductible's Work?

by Ben Chambers

If you’re new to shopping for car insurance one of your burning questions may be: What is a deductible, and how does it work? The fact is, one of the most important factors to consider when you are shopping for car insurance is your deductible, and they can be used in different ways depending on what type of insurance you’re applying for.

What is a Deductible?

A Deductible is how much money you would have to pay out of pocket in the event of a claim that requires it. Your deductible also has an impact on the premiums you pay for your insurance policy.

There are two distinct types of deductibles that you will need to determine depending on your policy. One is a Comprehensive Deductible, and the other is a Collision Deductible. Comprehensive Deductibles come into play with claims that do not involve a collision, but some damage has occurred. Collision Deductibles are used when there has been a collision involving your vehicle.

When Does Your Deductible Come Into Play?

Depending on what type of claim you need to file, your deductible may, or may not come into play.

If you are filing a Collision Claim and you are found at fault, or partially at fault you will need to pay out the deductible indicated on your Insurance plan. If you are not found to be at fault, then depending on what province the collision took place in, either the other driver will be responsible for the damages to your vehicle, or you will be paid out from the Direct Compensation section of your policy in no-fault provinces. These two cases do not require a deductible.

If you are filing a Comprehensive claim you will almost always have to pay a deductible because there is usually no one for the insurance company to seek compensation from. Comprehensive claims can be filed in cases where there was no collision but damage has occurred like vandalism, theft, extreme weather damages, and in cases where a collision occurred involving an animal but no vehicle.

Deductibles are an important part of the Insurance system because Insurance companies use them to keep rates low for their customers, thereby lowering the financial impact of claims on individual people and simultaneously discouraging claims that will require more resources to process than they are worth.

How to Choose the Right Deductible for You.

Choosing the right deductible for you can prove to be something of a balancing act. On one hand, if you opt for a higher deductible you will have to pay more out of pocket in an incident where a deductible is required, however, on the other hand, a higher deductible usually means lower premiums because you are taking on a higher portion of the responsibility in cases where your deductible comes into play.

When choosing your deductible amount consider how much you will save on your premiums in a year, compared to how much you will be responsible to pay out in the event of a claim. When determining which policy to choose between get multiple quotes each with matching parameters except for your Deductible Amount, this will allow you to compare the implications of having higher or lower deductibles based on how much you would save versus how much you would have to be responsible for in the case of a claim.

(Complete article available on request.)