What is a Deductible?

You may have heard the term ‘deductible’ used by your agent or car insurance company, but maybe you never knew exactly what it meant until you had a claim.

A deductible is essentially the amount of money you agree to pay BEFORE your insurance company will pay any portion of a claim.

By agreeing to ‘shoulder’ the first portion of any claim you may file, you bring down the cost to your insurance company and in return your car insurance premium is lower.  The larger your deductible, the lower your policy premium.

Deductibles also reduce the frequency of small claims, since you will have to pay the first $250, $500 or even $1,000 of each claim. This again serves to lower your premiums.

Deductibles have trended upward in recent years as consumers have found that higher deductibles allow them to save money on their car insurance. Twenty years ago it wasn’t uncommon to find $100 or $200 deductibles on comprehensive and collision coverage. Today, $500 and $1,000 deductibles are more common.

Finding the perfect deductible on your own policy is a balance between financial means and the benefit received from assuming part of the payment for each claim.