What is a deductible?  A deductible is the amount you must pay before your insurance carrier will pay any claim.  Insurance companies offer deductibles on certain coverage in order to share the risk with the people they insure.  Insurers believe that if you, the insured, share some of the risk you will likely be more careful and try harder to avoid a possible claim.  Since you, the insured, pay your share before the company is liable for their share, smaller potential claims are often avoided.

What is the right deductible for me?  It depends not only on the particular coverage, but more on if you want to or can pay the specified amount in the event of a claim.  In other words, select a deductible based on your tolerance for risk. Your agent should be able to help you choose a deductible that is right for you. Often, the decision is an easy one because many companies have a limited number of deductibles to chose from with the coverage.

Typically, which type of coverage offers a deductible?  The most common type of coverage with a deductible is physical damage (also known as comprehensive and collision).  This is coverage for your vehicle itself, when there is damage caused, whether or not at fault. In many cases, if you have borrowed money to purchase your vehicle through a bank or credit union, the lien holder will require that you have this coverage. This coverage is usually required for as long as you are still paying for the vehicle.  Typical physical damage deductibles are $250, $500, and $1000. Higher deductibles will reduce the cost of your insurance by lowering your premiums.  For higher deductibles, it is a good idea to consider carefully your circumstances.  Ask your insurance provider for quotes for various deductibles, and analyze them carefully before making a decision. The higher the deductible is, the lower the premium  will be for that coverage. This is a great way to save on the total cost of your policy. For example, increasing your deductible from $250 to $500 could reduce the physical damage portion of your policy from 15% to 30%, depending on your insurance company.

Another type of coverage typically offered with a deductible is Personal Injury Protection or PIP.  This coverage is also known as "No Fault".  "No Fault" insurance basically means the auto insurance system only requires drivers to carry insurance for their own protection, and places limitations on their ability to sue other drivers for damages.  In an accident, under no fault laws, your auto insurance company will pay for your damages (up to your policy limits), regardless of whom was at fault for the accident.  Any other drivers involved will be covered by their auto insurance policies.  Not every state requires this type of coverage.  "No Fault" is required if you live in: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, Utah or D.C.

"No Fault" is usually offered with or without the option of a deductible. You can choose to have a deductible if you want to take some of the risks, as with other coverage, such as physical damage.  As with physical damage, the higher the deductible, the lower the premium on your "No Fault" policy.  Your agent may recommend taking a deductible on your "No Fault" if you have health coverage elsewhere since you can only make one claim on any one injury. Some health insurance policies exclude automobile accidents, so make sure to check with your healthcare provider to find out if you are covered if you decide to go with a deductible. Common deductibles options on "No Fault" are $0, $250, $500, and $1000.

Disclaimer: This article is for information purposes. It should not be interpreted as a recommendation to buy or sell any insurance product, or to provide financial or legal advice. This information is provided for information purposes only.