Car Insurance Deductibles

Your guide to understanding auto insurance deductibles

What are auto insurance deductibles?

A deductible is a portion of the insurance claim that you're responsible for paying. Deductibles can vary depending on the type of coverage and the deductible amount that you choose. Deductibles can also vary depending of the percentage of fault you're assigned by the insurance company. If you're deemed to be less than 100 per cent at fault you may end up paying only a portion of your deductible.

The rule of thumb is the higher your deductibles, the lower are your insurance premiums. This is due to the fact that higher deductibles means that you will be taking on a larger portion of the claims thus reducing the financial obligation of the insurance company resulting from the claim. For example, if your deductible is $1,000 and you're involved in an accident with $1,500 worth of damages, you will be required to pay $1,000 (your deductible) towards the claim, while the insurance company will cover the remaining $500. If you anticipate a low future risk of filing a claim, choosing higher deductibles can save you money over the long term. However, choosing higher deductibles can also result in greater financial burden if a claim or multiple claims have to be filed.

Deductibles are applicable to optional coverages such as collision, comprehensive, specific perils and all perils.

Deductible strategies to reduce your premiums

Choose a deductible for Direct Compensation - Property Damage Coverage - While this is a mandatory coverage in some provinces, you have the option of selecting a higher deductible, which would lower your premiums. If there is a deductible chosen, you will be responsible for paying it when filing a claim. If a direct compensation - property damage coverage is chosen with no deductible and you're deemed to be not at fault in a car accident, you will not have to be out of pocket when filing a claim. In provinces with no direct compensation - property damage coverage, the damages will be covered by the liability coverage of the other driver who's found at fault.

Get rid of collision and comprehensive coverage for old vehicles - The value of older vehicles can be low enough that choosing collision and comprehensive insurance might not be worthwhile. For example, when an older vehicle is involved in an accident it may make more sense to write the car off completely, as the cost of repairing it can be greater than the value of the car. Not having collision and comprehensive coverage would lower your premiums.

It is recommended that you speak with a licenced insurance representative when choosing your coverages and deductibles. If you're shopping around for auto insurance, to ensure that you're comparing apples to apples, make sure that you're selecting equal coverages and deductibles for the companies you're comparing. Choosing the 'right' deductible is difficult and you may have to balance the affordability of the premiums with the potential financial burden of the deductible when filing a claim.

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