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What is a deductible?

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What is a deductible?

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A deductible applies to your collision and comprehensive coverages, the two types of insurance that pay for damage to your own vehicle, but not to liability coverage. The deductible is the amount of the repair or replacement cost youhave to pay out of your own pocket before the insurance kicks in to pay the rest.

For example, if you have a $1,000 deductible and you have $10,000 damage to your car, the insurance company will pay $9,000 ($10,000 minus $1,000). (There also may be a deductible on your PIP coverage, if you have it.)

When you purchase your policy, you must choose the amount of your deductible (it can be different for each of the coverage types). The higher the deductible, the lower your premiums will be. It is generally better to choose a higher deductible that you pay only if and when the need arises than to continuously pay higher premiums and perhaps never have a claim.

You would also want to avoid a history of multiple small claims, even if your deductible were low, as this would increase your rates. Still, you should make sure the deductible you choose is low enough that you could come up with that out-of-pocket amount if you needed to.

Set aside your deductible in an emergency savings account.
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