Understanding Deductibles: How They Affect Your Auto Insurance Premiums

One key component of an auto insurance policy is the deductible, which plays a significant role in determining premiums and out-of-pocket costs.

A deductible is the amount you agree to pay out of pocket before your insurance coverage kicks in to cover the remaining costs of a claim. Deductibles apply to various types of coverage within your auto insurance policy, such as collision and comprehensive coverage.

The purpose of a deductible is to share the financial risk between you and your insurance company. This shared risk helps keep insurance premiums more affordable for policyholders.

How Deductibles Affect Premiums

The amount of your deductible directly impacts your auto insurance premiums. Generally, higher deductibles result in lower premiums, while lower deductibles lead to higher premiums. When you choose a higher deductible, you take on more financial responsibility in the event of a claim, reducing the risk for the insurance company.

Conversely, if you opt for a lower deductible, the insurance company assumes a greater portion of the financial risk, which translates to higher premiums for you. The key is to find a balance that works for your financial situation and risk tolerance. While a higher deductible can save you money on premiums, make sure you can afford to pay the deductible out of pocket if you need to file a claim.

When selecting a deductible, consider factors such as your driving habits, the value of your vehicle and your financial situation. If you have a history of safe driving and rarely file claims, a higher deductible might be a cost-effective choice. On the other hand, if you frequently drive in high-risk areas or have a history of accidents, a lower deductible might be appropriate.

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Contact Lakewood Insurance to review your auto insurance coverage and get a quote.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.