A car insurance deductible is the amount of money you are responsible for paying out of pocket before your insurance coverage kicks in to cover the rest of the expenses in the event of a claim. 

Let’s say you have a car insurance policy with a $500 deductible. If you get into an accident and the repair costs amount to $3,000, you would be responsible for paying the first $500, and your insurance company would cover the remaining $2,500.

Why do car insurance deductibles exist? 

Deductibles help insurance companies manage risk. By having policyholders contribute towards the cost of a claim, insurance companies can keep premiums lower for everyone. Deductibles also discourage people from filing small claims, as it may not be cost-effective to file a claim if the repair costs are close to or less than the deductible amount.

Final thoughts

When selecting a car insurance policy, you usually have the option to choose your deductible amount. The deductible you choose can have an impact on your premium. Higher deductibles generally result in lower premiums and lower deductibles mean higher premiums since the insurance company will be responsible for covering more of the costs.

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