Auto insurance companies don't want to take all the risk by themselves when you get behind the wheel. If something should go wrong and you have an accident, you have to contribute at least a little to the cost of damages. This is where an insurance deductible comes in. It requires that you pay a portion of the costs resulting from an accident, typically a portion of the repair bills.
Effect on Claims
You pay the deductible first before the insurance company kicks in the balance of the cost of repairs. If your vehicle needs $3,000 of work, and if you have a $500 deductible, you would pay $500 to the repair shop and your insurer would pay $2,500. If the repairs cost $450 and you have a $500 deductible, you pay the entire bill. Deductibles typically apply to the collision and comprehensive coverages of your policy. If you have gap insurance -- the coverage that pays out if your car is worth less than the loan you have against it at the time it's totaled -- this might also have a deductible.
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Effect on Premiums
You can usually elect how much of a deductible you want to be responsible for. If you choose a lower deductible, your premiums are typically higher. If you're willing to pay a higher deductible, your premiums drop.