One way to easily customize your car insurance rates is to raise or lower your out-of-pocket deductible. Lower deductibles make claims more manageable but come with higher monthly payments, while higher deductibles put more of the financial burden on any claims you might have in order to lower monthly payments. Most car insurance policies offer deductibles as low as $0 and a maximum of $1,000.
What is a $1,000 Car Insurance Deductible?
If your car insurance policy has a $1,000 deductible, then that is the amount you will pay out of pocket if you get in an accident. For instance, if you’re involved in an auto accident that costs $3,000, you will pay $1,000, and your insurance provider will cover the remaining $2,000.
Your insurance company will likely send you a check for the amount minus your deductible. Deductibles divide risk between the insurance provider and the policyholder. A deductible is only charged if the accident causes damage to your vehicle. Coverages like bodily injury liability and property damage liability don’t have a deductible.
What is the Relationship Between the $1,000 Deductible and Car Insurance Premium?
It’s essential to understand that your deductible and premium are inversely related: if you increase your deductible, you will lower your monthly insurance premium. Paying a higher deductible can be an excellent way of saving money on your monthly premiums, but it will make any claims more expensive. That’s why it’s very important to assess your insurance needs and risk level before choosing a deductible is vital.
Related: What Is the Best Car Insurance?
What Types of Car Insurance Carry a Deductible?
Most types of car insurance coverage carry a deductible. The different types of auto insurance coverage include:
Comprehensive
Comprehensive coverage protects your vehicle from theft, vandalism, and natural catastrophes like flood, fire, hail, falling trees, and other hazards. Some insurance companies charge little or no deductible on comprehensive claims but will bill higher premiums.
Collision
A collision coverage pays for damage to your vehicle resulting from a collision with a building, stone, telephone pole, tree, animal, or another car. The average cost of a collision deductible ranges between $200 and $300, depending on the insurance company you choose. The coverage deductible only applies if the insurance company confirms proof of collision-related damage.
Personal Injury Protection
The coverage helps pay medical expenses in case you or your passengers get injured. Most states offer different levels of PIP deductibles, but the average amount required in most states is $10,000. Personal injury protection (PIP) can be mandatory in some states like Massachusetts, New Jersey, Florida, Hawaii, Oregon, Utah, North Dakota, New York, Kansas, Delaware, Minnesota, and Michigan.
Uninsured/Underinsured Motorist Property Damage
This type of coverage reimburses you for damage caused to your vehicle if you’re involved in an accident with an uninsured or underinsured motorist. The coverage is mandatory in some states like Massachusetts, Maine, Oregon, Virginia, North Carolina, Connecticut, Maryland, Nebraska, North Dakota, South Dakota, Vermont, and Wisconsin. Uninsured/underinsured motorist coverage may have state-mandated deductibles that range between $100 and $300.
Do You Pay a Deductible If You Hit a Car?
Deductibles are only charged when you are not at fault. If you hit another car in a collision, your liability coverage will pay for the injuries and damage caused to the other driver.
Related: Why Is Car Insurance So Expensive?
Choosing Your Deductible
It’s essential to weigh your options before increasing or reducing your car insurance deductibles. Here are a few tips to help you choose the right deductible amount for your car insurance:
Compare Quotes
Check and compare multiple quotes from different insurance providers. Remember, the amount you save depends on the state you live in, the amount of your premium, and how much you want to increase your deductible.
Assess the risk involved in higher deductibles.
Remember, out-of-pocket costs can easily strain your finances. Check your budget and decide how much you can afford to pay every month and where the deductible amount will come from in the event of an accident. Avoid using a credit card to pay your deductible, as the APR can overcome any savings you might have made on your premium.
Plan Ahead
Have a long-term plan for your savings and bank the money you save from premiums in a separate account to cover the deductible. A higher deductible can work in your favor if you have a good driving record. Drivers with excellent driving records have few or no accidents or citations. Check your vehicle price before choosing a deductible. Expensive vehicles cost more to insure, so if your finances allow, it could be a good idea to increase your deductible and lower your premium.
Negotiate With Your Lender and Insurance Provider
Some lenders may require you to purchase comprehensive and collision coverages and carry the maximum deductible for each. Check with your financial institutions and your insurance company to determine which deductible amount will work for you.
The Bottom Line
A $1,000 deductible car insurance policy is an excellent option if you have money saved up and want lower monthly payments. Don’t raise your deductibles if you’re having financial problems. If you can’t afford to pay your monthly or annual car insurance payments, there are other ways you can lower your premium, like bundling your home, boat, and auto policies. If you’re a skilled driver with a clean driving record, you can raise your deductible, but make sure that amount of money is always available in your bank account in case you need it.
Choosing what level of car insurance and the amount of your deductible is an important decision. Shop around, and you’ll find the plan that’s right for you.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.
