How To Set The Right Deductible For Your Car Insurance Policy
The deductible is the portion of the cost an insured driver has to pay if the policy provider approves their car insurance claim. If you have a $500 deductible and a $2,000 incident, for example, the insurer would pay $1,500 and you'd be on the hook for the remaining $500. Generally, a lower deductible means a higher premium, which is the amount you'll pay each month for the policy.
What is the right deductible for your policy? Talk with an auto insurance broker about these factors.
Maximum Out-of-Pocket Risk
The deductible on a car insurance policy should never be higher than the amount you can afford to pay out of pocket at any given time. If you can confidently say you'll always have $600 available for unexpected expenses, for example, you don't want to have a deductible higher than that. You will also probably want to have some wiggle room to deal with other things, so the deductible should probably be a tad lower than the maximum you can afford out of pocket.
If you have a flexible financial situation, you might go with a higher deductible. Someone who can confidently borrow money from friends or family members, for example, may be able to lean on that support mechanism if a big expense like an insurance deductible comes up.
Replacement Need
Another notable factor is how much you need to replace the vehicle in question. If you only have one vehicle, you'll probably want to be sure you can get back on the road as soon as possible. You may want to discuss a lower deductible with an automobile insurance agent so you can be sure you'll always be able to get a new set of wheels right away. A car insurance broker will probably tell someone in this situation to also get a policy with rental coverage. That means the insurer will provide a rental car while you wait for yours to be fixed.
Conversely, someone who owns several vehicles might be inclined to forgo some of these features while working with a higher deductible. If they can afford to do so, that's a good way to keep their premium low.
Premium
Most people don't like to pay high premiums. An automobile insurance broker will tell you, though, that low deductibles have to be offset somewhere. You might elect to carry less overall coverage, but it may be better to pay a low premium and maintain a high deductible. Remember that you need to keep enough money on hand, though, to cover the deductible if anything happens.
