Content of the material
- What is a deductible?
- Does Law Mandate Coverages?
- Factors to consider when choosing a car insurance deductible
- Do you want to pay less for car insurance or repairs?
- How much can you afford to pay out of pocket?
- Does your lender have deductible requirements?
- How will your car insurance deductible impact your rate?
- Should I Choose a Low or High Deductible Amount?
- The Bottom Line
- Still not sure what’s the right solution for you? Contact one of our InsuraMatch advisors at (844) 819-2221 to find the most economical and secure choice for your auto insurance!
- What Kinds of Auto Insurance Coverage Require a Deductible?
- What is a Car Insurance Deductible?
- What car insurance coverage types do not require a deductible?
- When do you pay the deductible for car insurance?
- What Kind of Coverage Doesn’t Require a Deductible?
- Choosing the right car insurance deductible amount
What is a deductible?
A deductible is the amount you pay out of pocket when you make a claim. Deductibles are usually a specific dollar amount, but they can also be a percentage of the total amount of insurance on the policy.
For example, if you have a deductible of $1,000 and you have an auto accident that costs $4,000 to repair your car. You will have to pay $1,000 out of pocket as your deductible, and then your insurance would cover the additional $3,000 (or up to your coverage limit). Your insurance company would then likely send you a check for the amount of the claim minus your deductible.
Deductibles are used as a way to share the risk between the policyholder and the insurance company. If you weren’t required to have a deductible, you could technically have as many accidents as you wanted on the insurance company’s dime. Paying a deductible ensures you also have a stake in any claims you make.
Deductibles usually only apply to damage to your own property, like in the cases of comprehensive and collision auto insurance. Liability coverage usually doesn’t have a deductible; your insurance company will often pay out the entire cost (up to your coverage limits) if you have to pay for another party’s medical bills or damaged property.
Does Law Mandate Coverages?
No. The law does not require you to purchase comprehensive and collision coverages. There are times when it makes good financial sense to decline this insurance. If the value of your vehicle is not worth the premium it costs, don’t pay for it. An excellent guide to follow is that if your car or truck is worth less than $4,000, physical coverage is not needed.
Factors to consider when choosing a car insurance deductible
There are several things to consider when choosing your car insurance deductible amount. We have covered some of them here:
Do you want to pay less for car insurance or repairs?
A higher deductible will generally lower your insurance premium, but you will pay higher out-of-pocket costs if you file a claim for damage to your vehicle. Some claims may even be covered under your deductible and you will have to pay the entire amount out of pocket. For example, if you back into a tree and do $350 worth of damage to your vehicle and your collision deductible is $1,000, you will pay out of pocket for all the repairs.
If you opt for a lower deductible, your car insurance premium will likely be higher, but you will have fewer costs if you file a claim. If your deductible is $100 and you cause that $350 damage by backing into a tree, you only have to pay your $100 deductible, while your insurance will pay the other $250. However, you could spend more on your premium by having a lower deductible and never end up filing a claim. This is the nature of having insurance coverage and an example of the risk both you and the insurer take on.
How much can you afford to pay out of pocket?
Before you choose a deductible, it is important to figure out what you can afford to pay if your car is damaged in an accident. If that amount is $500, you probably should not choose a deductible higher than $500. If you do, you may not be able to afford to fix your vehicle if you are at fault and need to pay the deductible for repairs.
Learn more: The cheapest car insurance companies
Does your lender have deductible requirements?
If your vehicle is financed or leased, you will probably need to carry comprehensive and collision coverages for your vehicle. If that is the case, you will need to choose deductibles for each. Some lenders will have a maximum deductible that you are allowed to carry for comprehensive and collision. It is important to check with the financial institution that handles your loan or lease to determine if these restrictions exist.
How will your car insurance deductible impact your rate?
Based on paying $420 for collision coverage on a six-month policy, the chart below shows how adjusting a deductible can change the coverage cost. Increasing your deductible from $100 to $250 provides the greatest jump in savings, while going from $1,000 to $2,000 offers the lowest amount of savings.
Should I Choose a Low or High Deductible Amount?
Keep in mind that a lower deductible for car insurance normally will result in a higher premium, because you’re assuming less of the cost for a claim. And a higher deductible typically will lead to a lower premium, because you’re assuming more of the cost if you make a claim.
If you have a car loan, your lender may require a certain deductible amount, so be sure to check before selecting an amount.
Otherwise, there isn’t a “right” or “wrong” deductible amount, it really comes down to what you’re comfortable doing. Generally, if you would rather pay more for car repairs than for insurance, a high deductible might be worthwhile. Consider the following:
- A high deductible might make sense if it doesn’t make you feel nervous that you will have to pay more to fix your car if you file a claim.
- You might opt for a high deductible if you have the money already saved to pay the difference between your repair bill and claim payout.
- If you don’t live in an area prone to hail, flooding or animal collisions or have a long commute or drive in an urban area, you may be less likely to file a claim, which means a high deductible might not be a bad choice.
The Bottom Line
Don’t start raising your deductible just because you can’t afford the monthly or annual payments. There are other ways to lower your premiums, like shopping around and bundling your auto and home insurance. Click here to learn about the 16 ways to lower your auto insurance premium.
If you couldn’t afford to make your deductible tomorrow, you need a lower deductible. If you’re a good driver with a high tolerance for risk, you can raise your deductible.
But you don’t need to make the decision on your own. You can start comparing auto quotes right now online, then speak with one of our insurance advisors over the phone at (844) 819-2221to determine the deductible-premium relationship for your auto insurance.
Still not sure what’s the right solution for you? Contact one of our InsuraMatch advisors at (844) 819-2221 to find the most economical and secure choice for your auto insurance!
Or compare real quotes from our carriers online right now:
What Kinds of Auto Insurance Coverage Require a Deductible?
Deductibles are most common with collision and comprehensive coverage. In some states, however, you may also have a deductible for personal injury protection or uninsured/underinsured motorist property damage coverage.
- Collision coverage: If you strike another vehicle or an object, collision coverage will help pay for repairs. Deductibles are standard for this type of coverage and can vary by insurer.
- Comprehensive coverage: If your vehicle is damaged by hail, fire, falling objects, collision with an animal or something similar, you’ll file a comprehensive coverage claim. Deductibles are standard for this type of coverage and also vary by insurer.
- Personal injury protection: Also known as PIP, this coverage pays medical bills, funeral expenses, child care expenses, lost wages and other similar expenses, regardless of who caused the accident. PIP is not available in all states and where it is available, it may be required or optional. Also, not all states that mandate PIP also require a deductible.
- Uninsured/underinsured motorist property damage coverage: If you’re involved in an accident and the other driver is at fault, but they either don’t have enough coverage to pay your property damage expenses or they’re not insured at all, this coverage will kick in. Depending on where you live, you may or may not be required to get this coverage. Deductible requirements can also vary by state.
If you’re not sure what’s required where you live and what to expect, contact your state insurance department to get the correct details.
What is a Car Insurance Deductible?
A car insurance deductible is the amount of money deducted when you file a claim under a policy’s comprehensive, collision, personal injury protection or uninsured/underinsured motorist property damage coverage.
If your car is damaged—it’s been pummeled by hail and needs to be repaired, for instance — you typically file a claim with your insurer to cover the loss if you have comprehensive coverage. But before the auto insurance company pays to get the hail damage fixed, your deductible is subtracted from your claim check. Typically, the deductible for car insurance is a flat amount, such as $500 or $1,000.
Here’s a quick overview that we’ll explain in detail:
- Comprehensive, collision, personal injury protection and uninsured/underinsured motorist property damage coverages carry deductibles.
- You choose the deductible amount.
- Some states specify the deductible amount that must be offered for personal injury protection.
- A high deductible amount usually means a lower rate.
- You usually pay a deductible every time you file a claim.
- Your deductible is taken from your claim pay out—you don’t actually pay the amount to your insurance company.
What car insurance coverage types do not require a deductible?
Liability coverage is required in most states and helps cover injuries and property damage for the other party or parties if you are at fault in an accident. When you buy liability coverage, you will choose a specific amount of coverage. These coverage limits are the maximum amount the insurance company will pay the other party for a covered claim. Because liability coverage extends to others to whom you injure or cause damage, there is no deductible.
If you choose optional coverages like roadside assistance or rental car reimbursement, there is generally no deductible, though there may be coverage limits and caps on the amount of claims you can file for these add-ons.
When do you pay the deductible for car insurance?
A better question might be, when do you not have to pay the auto insurance deductible? In most cases you’re on the hook for it, however if you’re in an accident which another driver is at fault for, this is not the case. You also don’t pay a deductible if the claim you’re filing is covered under liability insurance, which covers injuries and property damage in accidents you are at fault for. This is only the case as long as the costs fall within the range of the coverage you purchased, however. Lastly, a diminishing deductible may ultimately lead to a reduced deductible or even none at all. This kind of deductible rewards drivers for avoiding accidents by reducing their deductible each year they remain accident-free.
When you’re choosing a deductible, keep in mind that you may be more or less comfortable with higher out-of-pocket costs vs monthly costs. A high deductible will lower your overall insurance rate, however it will increase your out-of-pocket costs if you file a claim.1
What Kind of Coverage Doesn’t Require a Deductible?
A deductible does not apply to your liability insurance. If you cause damage to people or their property, this type of coverage protects you. If you are deemed at-fault for an accident, your liability insurance pays for the bodily injury and property damage up to your policy’s limit or cap.
Choosing the right car insurance deductible amount
Your first consideration when choosing your insurance deductible is how much you would be able to pay in the event of an incident. Car insurance companies sell you coverage for a profit, the more risk protection you buy the more they profit and the lower your deductible the more risk protection you are buying. Your deductible should be set at a level where if you had to pay the out of pocket expenses, you could do so reasonably without impacting your financial situation or lifestyle.It is also important to remember that since auto insurance deductibles are on a per-claim basis so the frequency of your claims will be one of the most important factors. If your policy has a $500 deductible and you were involved in four separate claims of less than $500, then you would be responsible for 100% of all the payments and your insurance would have provided no coverage.
If you have little savings and limited wiggle room in your monthly income and expenses, choosing a policy with a lower deductible and higher premiums can help you reduce your exposure to financial risks in case of an event. One approach you can take is to look at your driving and vehicle history.
If your history indicates that you may need to make more frequent claims, you may want to consider selecting a policy with lower out of pocket expenses. On the other hand, if you haven’t had a history of accidents you may not need a low deductible plan.