State Farm Auto Insurance Practice Test

Why is it important to know your deductible?

1. To determine your monthly payment schedule

2. To understand the out-of-pocket costs you bear before your insurance pays

3. To assess the value of your vehicle

4. To increase your insurance coverage limits

The correct answer is: To understand the out-of-pocket costs you bear before your insurance pays

Understanding your deductible is crucial because it defines the amount of money you are responsible for paying out of pocket before your auto insurance kicks in to cover the remaining costs. This knowledge helps you prepare for potential expenses in the event of a claim. For example, if you have a $500 deductible and you sustain damage to your vehicle that costs $2,000 to repair, you will need to pay the first $500 yourself, while your insurance will cover the remaining $1,500. Knowing your deductible allows you to plan your finances accordingly, especially in terms of budgeting for repairs and understanding the financial implications of a claim. This awareness can also help guide your decisions when choosing insurance policies, as higher deductibles typically result in lower premium payments, but may lead to higher out-of-pocket expenses when a claim is made.