Can you explain what "deductible" means in auto insurance?

In auto insurance, a deductible is the specific amount of money that the policyholder agrees to pay out of pocket before the insurance company pays for a covered claim. This amount is typically outlined in the insurance policy, and the purpose of the deductible is to share the risk between the insurer and the insured. For instance, if a driver has a deductible of $500 and experiences a car accident that results in $2,000 worth of damage, they would pay the $500 first, and then the insurance would cover the remaining $1,500.

Understanding this concept is crucial because it impacts how much you can expect to pay in the event of a claim and may also affect the premium costs. A higher deductible typically leads to lower premiums since the insured is taking on more initial risk, while a lower deductible may result in higher premiums. This makes it essential for policyholders to choose a deductible amount that aligns with their financial situation and risk tolerance.