What is a deductible, and how does it work?

What is a deductible, and how does it work? Imagine having your car fully insured, parking it overnight in a dark, dangerous part of the city with no security, and then finding it missing the following day. Naturally, you’d file a claim with your insurance company, expecting them to cut you a check for the stolen vehicle. After all, you’ve been the victim of a crime. But here’s the reality—leaving your car in a risky area without any precautions is considered negligence. When you file a claim, the deductible you’ve chosen will determine how much you need to pay out of pocket before your insurance company starts covering the rest of the cost.
To address situations like this, insurers introduced the concept of deductibles—a way to share the risk between the insurance company and the policyholder. The insurance company agrees to cover a portion of the potential loss, but the policyholder agrees to pay a certain amount out of pocket before the insurance company’s coverage kicks in.
With a deductible in place, the car owner is asked to take on a portion of the risk. It’s a system that encourages responsibility, like avoiding unsafe parking spots or driving recklessly. If an accident happens, the owner would be the first to pay out-of-pocket for repairs or recovery, striking a fair balance between risk and responsibility.
That’s why standard auto insurance policies require choosing a deductible for comprehensive and collision coverage.
There’s an unspoken rule: the higher the deductible, the lower your insurance premium, and vice versa. For example, if you have a $ 200 deductible and your car sustains $ 1,000 worth of damage, you would pay the first $200 and your insurance company would cover the remaining $ 800. If you increase your deductible to $500, you would pay the first $ 500 and your insurance company would cover the remaining $ 500. This would lower your auto insurance costs by 15% to 30%. Bumping it up to $1,000 might reduce your premium by 40%.
It’s better to have a higher or lower deductible. The answer, as always, depends.
It’s a decision that carries weight. If you’re comfortable paying $1,000 out-of-pocket in the event of an accident in exchange for lower monthly premiums, that option might be for you. Others prefer paying higher premiums to keep their deductible low if they need to file a claim. The key is to make an informed decision that suits your circumstances.
In the end, if you’re looking for the cheapest car insurance, contact Univista Insurance. What is a deductible, and how does it work?

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