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What is an Auto Insurance Deductible?

Updated: Jan 9, 2019

To determine exactly how much car insurance you can afford, you need to understand what a deductible is and how it works.

A deductible is the amount of money you agree to pay out of your pocket before your expenses are paid on a claim by your car insurance.


A driver damages his car in an accident and it will cost $3,000 to repair.

Choosing a higher deductible means you might pay less for your insurance premium now, but you should be prepared to pay more out of your own pocket later if you have an accident.

When you have an accident, your car insurance company will pay for damages up to the limit of your policy. Regardless of how serious how the accident is, you will only need to pay your auto deductible.

Keep in mind: deductibles do not apply to liability auto insurance coverage, as that pays for damages incurred by another driver when you cause an accident. Rather, it would apply to coverage types that pay your damages, such as collision or comprehensive coverage.

You can occasionally find policies with no deductible, but the auto insurance premiums are significantly higher for this type of coverage. In general, the higher your deductible, the lower your premium.


If you're on a tight budget, you may consider lowering your auto insurance payment by increasing your deductible. However, this is one cost-cutting measure that may not always be in your best interests.

It's true that a higher deductible will result in slightly lower monthly car insurance premiums; however, you need to realistically assess how much you'll be able to pay if you do get into an accident. Remember, car accidents can happen at any time, so you must determine whether your current budget would allow for payment of a very high deductible.

If you don't have easy access to these funds in your emergency savings, you may have to resort to measures such as a high interest personal loan or a cash advance on your credit card. Likely, both options would cost you more than you'd save on your premium.

It is better to obtain several different car insurance quotes to make sure you're getting an affordable auto insurance policy.

Simplified Insurance Agency – Insurance Made Simple

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