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A Simple Overview of Car Insurance Deductibles and Coverage Types

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Today’s not going to be incredibly fun, but I’m going to cover an important topic.

I’m sure you know how important it is to have a quality car insurance policy.

Nearly every state requires it’s drivers to have insurance coverage. It’s also nice to know that you are financially covered if the unexpected happens.

Now, while we can all agree on the benefits of car insurance, the reality is that most of us don’t fully understand the available coverages and what variables factor into our monthly premium.

Ready? Let’s dive in…
 

HOW CAR INSURANCE DEDUCTIBLES WORK

A car, or auto insurance deductible, is the amount of money you pay before your insurance company picks up the bill. You can think of it as the tipping point at which you’re no longer on the hook financially.

For example, let’s say you’re in a fender bender. You get out of your car to assess the damage to find that there is significant damage to the front of your car.

In fact, there is $1,500 dollars worth of damage.

If your car insurance deductible is $1,000, then you’ll pay $1,000 out-of-pocket and your insurance company will pay the remaining $500.

Now let’s cover how your deductible amount impacts your insurance premiums.

It’s pretty straightforward.

A higher deductible results in lower premiums.

A lower deductible results in higher premiums.

Why?

Think about it. A higher deductible means that you will pay more out of your own pocket in the event of a covered claim. A lower deductible means that you will pay less out of your own pocket for a covered claim.

Which is better for the insurance company? A higher deductible. That’s why higher deductibles result in lower premiums and vice versa.

So, going back to our fender bender example, an insurance policy with a $1,000 deductible will have a lower premium than the same exact policy with a $500 deductible.

Some insurance policies allow you to select your deductible when you buy a new policy.

You can also have several deductibles on the same insurance policy. Some car insurance policies can have a deductible for every claim, but that’s not always the case.

What about coverage limits?

Good question.

You need to understand your coverage limit as it relates to your deductible.

Your auto insurance coverage limit is the maximum dollar amount your insurance provider will pay for a covered claim.

This means that once you meet your deductible threshold, your insurer will pay the remaining cost of your covered claim up to the coverage limit.

If your claim surpasses your coverage limit, you’ll have to pay anything above your limit.
 

The types of car insurance coverages

I mentioned it above. Nearly every state requires its drivers to have auto insurance before they can legally drive a car.
Here is a summary of the insurance policies that almost every state requires.

Liability coverage (personal injury), a version of liability insurance, will help cover costs resulting from an injury to you, or another driver if you’re actions cause his injury.

Property damage insurance coverage protects you in the event that you or any other person driving your car damages another vehicle or an item on the road. For clarity, ‘other items on the road’ are things like a fence or building.

It all depends on the state, but some require additional insurance coverage.

Getting this extra coverage might be a good idea even if your state doesn’t require it. Of course that all depends on your personal situation.

Here are some of your options for additional coverage.

Medical Payments or Personal Injury Protection (PIP) covers a wider range of costs that might come up. Things like medical expenses for your injuries, medical expenses for the injuries of your passengers, and lost wages are all covered by this type of auto insurance.

You’ll want to have Uninsured Motorist Coverage if If you get into an accident with someone that doesn’t have insurance.

You can also by Insured Motor Insurance to help pay for some of your expenses if the other driver doesn’t have enough insurance coverage. A driver that has some insurance, but not enough to cover the cost of an accident they’re in, is known as an underinsured driver.

Again. The coverages listed immediately above are optional, but you should consider adding them if you can afford it.

The types of car insurance that most states require only covers damage that you cause to other vehicles and personal injury.

But what about damage to your own car?

Relax. There’s a policy for that. Here are the policies that cover damage to your car.

Let’s say your car collides with another vehicle or object such as a fence. If this happens, you better hope you have Collision Coverage.

In this case, Collision Coverage will help pay some of the costs associated with fixing your car. However, it does not compensate you for mechanical failures or normal wear on your car.

The last type of coverage I’ll mention is known as Comprehensive Coverage. 

Comprehensive Coverage protects policyholders in the event of theft or damage caused by an incident other than a collision, such as a fire, flood, or vandalism.

OK. I actually want to throw in one more type of car insurance coverage.

Windshield damage happens all the time. You should consider additional glass coverage to help offset this risk.
 

States With Exceptions

There are rare exceptions to the compulsory car insurance laws.

New Hampshire has no mandatory insurance liability law. The only requirement is that drivers demonstrate they have sufficient financial resources to deal with a “culpable” accident.

In Virginia, motorists must take out insurance or register for an uninsured vehicle for a substantial fee.

Motorcycle insurance is required in each state, except for HawaiiMichiganMontana, and New Hampshire, which are not mandatory. The minimum liability limits for motorcycles are the same as for private cars.