What is an Auto Insurance Deductible?

What is an Auto Insurance Deductible?

An auto insurance deductible is the dollar amount a driver pays out-of-pocket in the event that a claim is filed after an accident. For example, a driver with a $500 deductible has a fender bender resulting in a repair bill that exceeds $2,000. The driver pays the first $500 of the bill and the insurance company picks up the tab for the remainder.

Typically, a higher deductible (think $1,000) means a lower monthly premium. Vice versa, a lower deductible ($250 for example) will mean a higher premium. While higher deductibles lead to more savings on a monthly insurance premium, they also mean higher out-of-pocket expenses in the event an accident does occur.

Choosing how high of a deductible to carry depends on several factors including a driver’s financial situation, what type of car they drive, and how they use their car. Basically though, it boils down to choosing to either pay more up front (low deductible, high premium) or more on the back end (high deductible, low premium) when an accident happens.