Understand the difference between premium and deductible in auto insurance

Are you researching or in the process of purchasing insurance and don't quite understand the difference between premium and deductible in auto insurance? Then, follow this article and learn more about the subject.

Having car insurance is becoming increasingly important, especially given all the situations we are experiencing. However, hiring this type of service is not always an easy task.

In addition to countless searches and quotes, to analyze prices, services and coverage offered, it is important to be familiar with the main terms used in the world of car insurance.

This helps a lot to better understand all the conditions imposed when contracting the service, in addition to understanding your rights and the values ​​applied to it.

To help you with this task, we have prepared this article, explaining in more detail the difference between the auto insurance premium and deductible.

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See the difference between premium and deductible in car insurance

In order for you to definitively understand the difference between premium and deductible in auto insurance, it is important to understand what each of these terms means. Therefore, here is a brief explanation of each of the terms mentioned:

Award: the premium is the amount paid for contracting the protection service, that is, it is the price of the auto insurance, paid at the time of contracting the auto insurance, to guarantee all the benefits and coverage negotiated.

Franchise: the deductible is a mandatory fee that must be paid by the insured to use certain coverages. It is important to note that not all coverages have a deductible, just as the deductible amount is not fixed for all coverages included in the same contract.

Therefore, the difference between premium and deductible in auto insurance is that the first is the amount charged for contracting the service, and the second is the amount charged for using the coverage.

How is the prize amount calculated?

The value of the prize is calculated based on information relating to the vehicle such as date of manufacture, mileage, vehicle conservation conditions and installed accessories.

In addition, information regarding the main driver such as age, gender, marital status, vehicle usage habits such as parking on the street or in closed parking lots, frequency of vehicle use and places where the vehicle is driven, among others, also influence the calculation of the premium value.

Premium calculation margins, as well as coverage, additional services and benefits, may vary from one insurance company to another, so it is important to do a lot of research before taking out car insurance.

How does the franchise work?

Just as the calculation of the premium value can vary from one company to another, the value of the deductibles charged in a policy can also vary.

Therefore, this is an important factor to consider during your research. After all, the definition of the type of deductible influences the final value of the auto insurance premium.

Whenever a loss (accident or problem) occurs with an insured vehicle, part of the cost of repairing it must be paid by the insurer, and the other part must be paid by the insured.

This part of the insured's responsibility is called the deductible and, despite being a mandatory payment, the type of deductible can be chosen by the insured when contracting the service.

In general, three of the four existing types of franchise are available for the insured to choose from, which are:

1. Normal franchise

The most common in auto insurance contracts, it guarantees the payment of a median amount whenever a partial loss occurs and the auto insurance is activated.

In other words, this type of deductible divides the liability between the insured and the insurer by 50%. Consequently, the value of the insurance premium is more balanced.

2. Increased deductible

The increased deductible, also known as the optional deductible, usually has a higher value than the normal deductible. This means that the insured will pay more than the insurer for a repair if the insurance is activated.

This type of deductible usually lowers the value of the auto insurance premium, as it ensures that the insured will be responsible for most of the payment for repairs in the event of an accident.

3. Reduced deductible

A reduced deductible can be 25% to 50% cheaper than a normal deductible. In other words, it allows the insured to pay a much lower amount than the insurer if a claim occurs.

However, this type of deductible usually increases the premium value. Therefore, you need to be aware of this detail when choosing it.

4. Exempt franchise

In addition to these three types of deductibles mentioned, there is also the exempt deductible, which is only valid in some situations and is therefore not available for choice when taking out car insurance.

In general, the exempt deductible is only valid in cases of total loss, whether due to an accident, covered by the policy, or due to theft or robbery of the vehicle, without it being located within an average period of 30 days.

Now that you know more about what a premium and deductible are and what their types are, it will be much easier to understand the difference between premium and deductible in auto insurance and to hire the best service for your needs.