How Does a Higher Deductible Affect Auto Insurance Claims?
- An auto insurance policy provides a person with financial coverage in the event that he is involved in an automobile accident. Depending on the nature of the policy, it will provide a person a payout up to a certain dollar amount under certain conditions. For example, a $10,000 property liability policy will provide up to $10,000 to cover damage to another person's property.
- In order to receive payment from an auto insurance company, a person must file a claim. This claim is, in effect, a request for payment from the auto insurance company equivalent to the amount provided under the terms of the person's insurance policy. The claim will be processed by the insurance company, which will decide how much money the person who filed the claim is entitled to.
- Most insurance policies have deductibles -- amounts that the policy holder must pay out of pocket before the insurance company will pay out the remaining amount of the claim. When a person chooses a higher deductible, he will have to pay more out of pocket before the insurance company's coverage starts. For example, on a policy with a $500 deductible, a person will have to pay the first $500 in damages on the claim.
- A higher deductible can lead to fewer claims, since anything up to the amount of the deductible will not be covered. More importantly, choosing a deductible amounts to gambling on the amount of claims you make. If you have no accidents, for example, a higher deductible will save you money, but if you have many accidents, you will pay up to the amount of the deductible for each occurrence.