What Are Deductibles and Policy Limits of Liability, and How Should I Choose Them?
Insurance
Understanding deductibles and policy limits is crucial for selecting the right auto insurance policy to protect you financially.
What is a Deductible?
A deductible is the amount you agree to pay out-of-pocket towards a covered claim before your insurance coverage starts paying.
- Deductibles usually apply to Comprehensive and Collision coverages.
- Common deductible amounts range from $50 to $1,000 or higher.
- Example: With a $500 collision deductible, if you have a covered accident causing $2,000 in damage, you pay the first $500, and AAA pays the remaining $1,500. If the damage was $300, you would pay the full $300 since it's less than your deductible.
What are Policy Limits (Limits of Liability)?
Policy limits represent the maximum amount your insurance company will pay for specific types of covered claims. Liability limits are often expressed as three numbers (e.g., $100,000 / $300,000 / $50,000):
- 1st Number: Bodily Injury liability limit per person.
- 2nd Number: Bodily Injury liability limit per accident total.
- 3rd Number: Property Damage liability limit per accident.
While each state has minimum required liability limits (e.g., AZ: 25/50/15k, CA: 30/60/15k, MT: 25/50/20k, NV: 25/50/20k, UT: 30/65/25k, WY: 25/50/25k - subject to change), choosing higher limits provides greater protection for your assets.
How Should I Choose My Deductibles and Limits?
- Consider the Trade-off: Generally, higher deductibles and lower limits lead to lower insurance premiums, while lower deductibles and higher limits offer more financial protection but result in higher premiums.
- Assess Your Situation: Evaluate your budget, your ability to cover a deductible unexpectedly, and the value of assets you need to protect. State minimum liability limits may not be sufficient in a serious accident.
- Consult an Expert: Balancing coverage needs with affordability can be complex.
We highly recommend discussing your personal circumstances and coverage options with an insurance professional. To get personalized advice, please contact your AAA Insurance Agent.