What is the difference between a deductible and a premium in auto insurance?

Some of the terms around auto insurance can be outright confusing. However, you don’t have to puzzle about the meaning of certain terms. If you’ve ever asked yourself about the difference between a deductible and a premium in auto insurance, let’s explore the terms and demystify some of the jargon.

You don’t have to be an expert at understanding auto insurance to know the difference between a deductible and a premium.

Understanding the Difference Between a Deductible and a Premium

Deductibles and premiums are core components of any auto insurance plan. Despite any surface-level confusion, deductibles and premiums couldn’t be more different.

What are auto insurance premiums? A premium is like your monthly fee. If you have an insurance plan, you likely have a premium. You’ll pay your premium on a month-to-month or periodic basis to have coverage.

On the other hand, a deductible is more like the minimum to maximum amount out of pocket you’ll have to pay in the event of a claim. The actual price of a deductible can vary depending on your auto insurance company.

In short, everyone will pay a premium to get auto insurance coverage. However, all plans will have a deductible, and you likely won’t have to pay anything unless there is a reason to file a claim on your auto insurance.

Situations That Call for Auto Insurance Deductibles

With all this in mind, where do deductibles come into play? As previously mentioned, you’ll pay a deductible in the event of a claim.

The actual price of your deductible is variable, but in the event of a claim, it can play out in several different ways. For example, if you’re in an accident and the cost of repairs doesn’t exceed your deductible, you would pay a partial amount to get the repairs performed.

This isn’t different from paying out of pocket yourself, but extra documentation is beneficial to accompany any repairs.

The other scenario is with more catastrophic damage. If the repair cost exceeds your deductible, you would pay the full amount, and your insurance company would shoulder the rest.

This can greatly benefit your finances, as things like engine repair, bodywork, and other mechanical components can be extremely expensive.

A plan with a deductible is pretty much universal across all auto insurance coverage types, whether you’re searching for affordable comprehensive auto insurance coverage or liability coverage. Likewise, whether you’re only covering liability or full coverage auto insurance, you can expect your plan to have a deductible.

What determines the cost of a deductible or premium?

Deductibles can vary depending on your auto insurance plan, but so can premiums. Deductibles and premiums are affected by things like your driving record, recent claims, the age of your vehicle, and many other factors.

Premiums very much depend on the many factors mentioned. Generally, when you’re finding auto insurance quotes online, auto insurance companies will look at your driver history.

Deductibles depend on the same factors but can stay at a fixed amount. The actual cost of your deductible depends on the auto insurance plan and the company you’re getting coverage from.

The Final Word on Deductibles and Premiums

Hopefully, you’re coming away from all of this with a better understanding of the differences between a deductible and a premium in auto insurance. Unfortunately, auto insurance can be somewhat confusing to someone less versed in the terms used.