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.
Most drivers choose to carry a $500 deductible due to the balance of affordable monthly payments and reasonable out-of-pocket expenses in the event of a claim. If you’re shopping for auto insurance, your insurance company will likely require you to select your car insurance deductible amount. Since they are directly connected to your monthly or annual premiums, learning how deductibles work can help determine whether the $500 deductible is suitable for you or not.
What Is a $500 Deductible?
An auto insurance deductible is the amount you are responsible for paying out of pocket if you file an approved claim. Your insurance company will pay the remaining amount up to the policy’s coverage limit. For instance, say you’re involved in an accident totaling $4,000 and have a deductible worth $500. Your insurance company will pay $3,500, and you will be responsible for paying the remaining $500.
How Are Insurance Premiums and Deductibles Related?
Choosing a $500 deductible is a great option, but understand that your premiums and deductibles are inversely related: if you lower one, you increase the other.
If your overall insurance cost is high, you will have to pay high premiums to balance the coverage. For example, a policy with a $500 deductible and an $8,000 coverage limit will carry more expensive monthly premiums a policy with a more expensive deductible and the same coverage limit.
Apart from deductibles, other factors can affect your insurance premiums. They include:
- The model and year of your vehicle
- Your driving record
- Where you live
- Your age
- Your credit score
- Your gender
- Insurance history
Related: Factors That Affect Car Insurance Rates
Types of Coverage That Require Deductibles
Deductibles are only applied to specific coverages that cover your medical bills and property damage. These types of coverages are mandatory in some states. You can check insurance laws in your state or consult your insurance company to determine which coverages are required in your state. The coverages include:
- Collision: Collision coverage pays for damage to your vehicle resulting from hitting an object or another vehicle. This coverage pays for any collision-connected damage.
- Comprehensive: Comprehensive coverage compensates you in case you lose your car due to theft, fire, vandalism, hail, and other hazards.
- Uninsured/underinsured motorist: If you get into an accident with an uninsured/underinsured motorist, this coverage can help repair your vehicle. This coverage is available in some states like Massachusetts, Maine, Oregon, Virginia, North Carolina, Connecticut, Maryland, Nebraska, North Dakota, South Dakota, Vermont, and Wisconsin. Some of these states may have minimum deductible requirements.
- Personal injury protection: Personal injury protection pays medical bills for you or your passengers in the event of an accident. States that require you to carry this coverage include Massachusetts, New Jersey, Florida, Hawaii, Oregon, Utah, North Dakota, New York, Kansas, Delaware, Minnesota, and Michigan.
Insurance companies can pay for your damaged car without requiring you to pay a deductible. For instance, insurance companies will fix chipped or cracked windshields. Most insurance companies have specified the deductible for each coverage.
Factors to Consider Before Choosing a $500 Car Insurance Deductible
Before choosing a $500 deductible, carefully research premiums and assess your financial objectives. If you’re tempted to reduce or increase your deductible, consider the following factors.
Your Driving Record
Your insurance company will assess your driving record to determine your insurance rates and deductibles. If you haven’t had an accident in the past ten years, your insurance company may allow you to choose a higher deductible and pay lower premiums.
The amount of your deductible should be an amount your comfortable paying out of pocket. If you’re not able to keep more than $500 in your savings account at a time, don’t increase your deductible.
The Method You Used to Buy the Vehicle
If you took out a car loan when you bought your vehicle, then you are subject to the lender’s coverage requirements. Some auto lenders require drivers to carry certain levels of coverage and deductibles. However, if you own your vehicle outright, you are not subject to these requirements and can choose your own policy limits.
The Value of Your vehicle
A higher deductible can be a great option if you own an expensive vehicle. If you get a high deductible for a less valuable car, the cost of repairing the damage might not go above your deductible, so you don’t necessarily have to file a claim through your insurance company.
Related: What Is the Average Car Insurance Cost in America?
1. Should I pay the insurance deductible if I’m not at fault?
This depends on your state. If you live in a state using a “fault” system, the driver at fault should pay for your repairs, and you don’t have to pay your deductible. If you live in a state that operates on a “no-fault” system, both parties can file claims with their insurance companies. In this case, you may need to pay your deductible. However, deductibles only apply to personal medical expenses and property damage.
2. How does my driving record affect my choice of a deductible?
A clean driving record can earn you a higher deductible which will help you save more in premiums. Check your driving record online or contact your licensing office.
3. What if my car insurance deductible costs more than my repairs?
If you get into an accident and your car insurance deductible amount is higher than the damage to your vehicle, you don’t need to file a claim, as your deductible can cover the entire cost. Your insurance company only issues payment if the damage cost on your car is more than your deductible amount.
A $500 deductible car insurance policy is an excellent option for balancing your finances. While you can always upgrade to save more, it’s essential to consider certain factors before making any decisions. Remember, there are ways you can lower insurance premiums without increasing your deductible, such as having a good credit score, living in a safe location, and installing safety systems to keep your car safe and prevent damage.
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.