How To Choose Your Car Insurance Deductible (2022 Guide)

What Is A Car Insurance Deductible?

A car insurance deductible is the amount of money that you pay out of pocket before your insurance provider covers damages after an accident or other event. You don’t actually pay a deductible to the insurance company – you pay it to the repair shop when they fix your car. Depending on your state, you might have a deductible for other types of coverage, too.

Let’s say you file a claim that results in a $2,000 expense. If you have a $500 deductible, you must pay that amount before the insurance company pays the remaining $1,500.

However, if you have a $500 deductible but your car repair costs are only $400, that means you’ll have to pay the full amount of repairs without the auto insurance company’s help. Insurers will not be responsible for expenses that do not exceed your deductible.

Health Insurance Vs Car Insurance Deductible

Your car insurance deductible doesn’t work like your health insurance deductible. With health insurance, you have a deductible that gets reset every year. As you use health services, the money you spend out of your own pocket will add up. Once it hits the deductible amount, your health insurance takes over. When the new year rolls around, it all starts over.

With car insurance, you pay your deductible every time you file a claim. Let’s say you got into an accident and filed a collision claim. On your way to the repair shop, a freak hail storm adds more damage to your car. You’ll file a separate comprehensive claim for that damage, and you’ll pay your deductible on both claims. There is no limit to how many times you pay your deductible in a year. If you file five different collision claims in one year, you’ll pay your deductible five times.

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What factors should you consider when choosing a deductible?

1. Could you afford a higher deductible in the case of an incident?

What does your emergency fund look like? If you have a $1,000 deductible, you would then have to pay that $1,000 in the case of a claim.

Could you pay that money out of pocket in order to repair your car? If the answer is no, you’ll want a lower deductible to ensure you are not left without in a bind to repair your automobile. If you have that money on hand at any point, it might be worth opting for a higher deductible.

2. What is the payback?

Do the math with your insurance agent. How much would you save on a lower premium if you had a higher deductible? Would you save money that would equate to that deductible in the case of an incident?

For example, lets say that changing from a $500 to $1,000 deductible would save you 10% on your annual premium. Your annual premium for the $500 deductible would have been $800, but with the $1,000 deductible the premium is instead $720.

Now you have an increased deductible by $500, but you are saving $80 per year. That means you would need just over 6 years in order to make up the difference. If you don’t get into an accident in those 6 years, the increased deductible was worth it. If not, you have to pay more out of pocket.

This is a basic form of the math. Working with an insurance advisor will take your other deductible variables into account as well and help you arrive at a better decision. Call (844) 819-2221 to speak with one of our advisors.

3. How often do you have accidents?

If you have a lot of accidents and claims, you’ll want a lower deductible. This means you’ll have to pay out less each time you have a claim.

If you have a good driving record, a higher deductible could work in your favor. You’ll save money on the premiums, which you could use towards your deductible in the case of a claim. For example, a driver who hasn’t had an accident in 20 years might not be scared by the above example of the 6-year time period to make up the difference. They might opt for a higher deductible because they feel they have a lower risk of collision.

4. How risk averse are you?

Ultimately, a higher deductible is a higher risk. The lower your deductible, the more coverage and security you have. How much are you and your family willing to risk?

5. What is the value of your vehicle?

Expensive vehicles cost more to insure. In this case, a high deductible might make sense because you would have higher savings on your premiums.

On less valuable cars, you may not want a high deductible because the cost to repair damage might not equate to your deductible. For example, if you have a $1,000 deductible and your used car needs a total repair of only $600, you would pay that entire amount out of pocket. Your insurance wouldn’t pay for anything.

Additionally, a lower value car will have a lower cost of insurance. In this way, the price difference between a $500 deductible and $1,000 deductible wouldn’t offer significant premium savings.

6. Are you leasing or financing your car?

People who are leasing or financing their car tend to choose a lower deductible. This provides better coverage in the case of a claim. This is necessary for people who don’t own their car, because they are responsible for returning the car in working condition no matter what—with or without the financial help of insurance.

7. Can you mix and match deductibles? 

If you’re a good driver, you might be able to offset costs by having a high deductible for collision and low deductible for comprehensive. This ensures a high line of coverage for unexpected incidents and “acts of God” under your comprehensive coverage. Plus, comprehensive is usually a cheaper coverage policy.

You would offset the raised comprehensive premium cost by holding a higher deductible for collision insurance. Collision policies cover those costs if your vehicle hits a car or other car. If you don’t get in a lot of accidents, you can take the risk with a higher deductible.

Nevertheless, to keep it simple, you may want to hold the same deductible for all types of coverage and cars.

How Do Car Insurance Deductibles Work?

Let’s say it’ll cost $5,000 for a repair shop to fix damage caused by hail. If you have a $500 deductible for your car insurance policy, the insurer will subtract $500 from the $5,000 payout to cover the hail claim. This means you’ll get $4,500 to cover the repair job, and you’ll be responsible for the remaining $500.

You choose your deductible amount when you buy the policy and typically must cover your deductible every time you file a claim. (You can change your deductible, but the change won’t apply to existing claims.)

The most common car insurance deductible is $500. However, deductible amounts can vary from $100 to $1,000 or higher, depending on your insurance company and where you live.

Diminishing Deductibles

Some insurers will reward you for being a safe driver through an optional feature called a “diminishing deductible.” It’s also sometimes called a “vanishing” or “disappearing” deductible.

Over time, if you steer clear of car accidents and maintain a clean driving record, your insurer will lower your deductible. For instance, an insurer might offer an annual $100 deductible credit for each year you remain a safe driver. In this scenario, if you go three years with a spotless driving record, your $500 deductible could go down by $300. This means your new deductible would be $200.

What is the average car insurance deductible?

Generally, many drivers carry policies with $500 comprehensive and collision deductibles, but there are usually other levels available. Most companies offer options for $250, $500, $1,000 or $2,000 deductibles. Some auto insurance companies offer different options for deductibles, including a $0 or $100 deductible. Your comprehensive and collision coverages do not have to match, either; it is not uncommon to have a $100 comprehensive deductible but a $500 collision deductible, or a $500 comprehensive deductible and $1,000 collision deductible.

What you end up with will depend on how much you have budgeted to spend on car insurance each month and how much you can afford to pay out of pocket if you end up needing repairs. Generally, the lower the deductible, the higher your insurance premium. It is important to consider your overall financial health when choosing a deductible.

High vs. low car insurance deductibles

In most cases, you can choose whether you want to pay a higher or lower deductible for car insurance. Car insurance deductible amounts typically range from $100 to $2,000. The most common deductible our drivers choose is $500, but there’s no wrong choice. Ultimately, it comes down to what you prefer:

Higher deductible = Lower car insurance rate and higher out-of-pocket costs Lower deductible = Higher car insurance rate and lower out-of-pocket costs

Choose an auto deductible amount you’re comfortable with, and make sure you can afford to pay your deductible out of pocket in the event of a claim. It’s also important to consider your driving history and the likelihood of filing a claim. You may opt for a higher car insurance deductible because you’re betting against having an accident, but if you’ve had accidents in the past and often drive on busier roads, you may be more likely to file a claim and pay a deductible.

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

Do I have to pay the deductible if I’m not at fault?

In short, it depends on where you live.

In most states, if you’re in an accident that’s the other driver’s fault, their liability insurance is usually responsible for covering your repairs, up to the coverage limit.

But if you live in a no-fault state, it doesn’t matter who caused the accident. If your car is damaged and you have collision insurance, you’d need to file a claim with your insurance company and pay your deductible before your coverage kicked in.

You’ll likely also need to pay a deductible in these scenarios.

  • You’re in a single-car accident, such as sliding on wet pavement into a tree. Your collision insurance would likely help pay for repairs, up to your coverage limit, after you pay your deductible.
  • Your car is stolen or damaged by vandalism, a natural disaster, a falling object or an animal. Your comprehensive insurance will typically help pay for the cost of repairs up to your coverage limit, minus your deductible.
  • Your windshield cracks or shatters. Comprehensive coverage generally covers glass breakage, up to your coverage limit, minus your deductible.
Should I file an auto insurance claim or pay for the damage out of pocket?

When are you not required to pay your car insurance deductible?

There will be occasions when you are not required to pay your deductible, but those are few and far between. In general, you will not be required to pay your deductible when:

Another driver is at fault

If another driver is at fault for hitting you and they are insured, you should not be responsible for paying a deductible on the claim that you file through their insurance company. Your deductibles only apply when filing a claim with your insurer.

If you have a diminishing deductible

Some insurance companies offer a diminishing deductible, or vanishing deductible, option. If you have this policy feature, the longer you go without an accident results in a reduction in the amount you would have to pay for your deductible. Usually, it is a $100 credit applied towards your deductible amount each year you are accident-free. So, for example, if you have a $500 collision deductible and do not have an accident for four years, you could receive a $100 reduction every year. Then, if you needed to file a claim, your deductible would be $100 instead of the original $500. Once you use your diminishing deductible, there is usually a time period to qualify for it again. Speak with your insurance agent or carrier representative to see if this feature is available and their criteria.

Finding help for your car insurance tax deduction

When it’s time to calculate your expenses and complete your forms, we understand you might want some help. That’s why H&R Block is here to help.

Whether you choose to work with one of our knowledgeable tax pros or file your taxes with H&R Block Online, you can count on H&R Block to help navigate your car related deductions.

Average Car Insurance Deductibles

Generally, drivers tend to have average deductibles of $500. Common deductible amounts also include $250, $1000, and $2000, according to WalletHub. You can also select separate comprehensive and collision coverage deductibles. For example, you could have a $1000 collision and a $500 comprehensive policy deductible or vice versa.

MoneyGeek reviewed costs for an average 100/300/100 comprehensive and collision auto policy with different deductible amounts and found that with a $1000 deductible, the driver would pay about $1348 compared to $1456 per year for a similar driver who chose a $500 deductible.

WalletHub used a similar approach to get sample quotes from Progressive for a six-month collision insurance policy and found these averages:

  • $84 per month for auto insurance with a $2000 deductible
  • $89 per month with a $1000 deductible
  • $129 per month with a $500 deductible
  • $182 per month with a $250 deductible
  • $250 per month with a $100 deductible

Can you deduct car insurance and mileage?

No, you’ll need to choose which way you want to offset vehicle expenses. Generally, you can deduct unreimbursed vehicle expenses using one of these methods:

  • Standard mileage – $0.56 per mile in 2021. If you use the standard mileage rate, you cannot deduct auto insurance premiums as a separate expense. However, you can still deduct tolls and parking fees.
  • Actual vehicle expenses – This includes car insurance and the other items listed above.

If you’re not sure which one you want to use, or which may let you deduct more, it may help to review the mileage deduction rules.

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Choose confidently with help from our team of expert insurance advisors.

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Keep accurate records for tax filing

If you qualify to deduct car insurance expenses from your yearly tax bill, then you need to keep good records. One of the key perks of rideshare driving is flexibility: You may drive five hours one day, one hour the next and seven another day.

If you drive sporadically for your business, knowing how much you drove during the year can be difficult unless you are keeping a steady track throughout the year. Write down every time you were driving on the clock, and also have a good estimate of all the times you were off the clock.

You should hold onto your driving records for at least three years. Should the IRS ever ask you to justify your car insurance tax write-offs, you will need to be able to show them.

When do you pay a car insurance deductible?

You pay your deductible any time you file a claim under a coverage that carries a deductible, assuming the damage is covered and costs more than your deductible amount. If your claim is approved, your deductible will typically be applied when your insurance company issues your payout. You generally don’t have to write a check or make a payment to your insurer. They simply subtract your deductible amount from your claim’s approved payout. Suppose you have a claim approved for $5,000, and your deductible is $250. In that case, your insurance company will issue you a check for $4,750.

What Happens If You Can’t Pay Your Deductible?

When paying out an insurance claim, your insurer will often write you a check for the amount it’s responsible for covering. If you are unable to pay the remainder of your costs for the deductible, you may have some options. Below are some steps you can take if you can’t afford to pay your deductible: 

  1. Discuss a payment plan with your repair shop: It could be worthwhile to talk to your mechanic about payment options after an accident. You might be able to negotiate with the mechanic to waive your deductible or for a payment plan.
  2. Take your car to a different repair shop: If you decide to take your auto insurance check to another repair shop, it could mean cheaper repairs. 
  3. Continue to use your car until you can afford your deductible: Many drivers choose use their car (if it’s still operable) until they can come up with the deductible amount. Waiting to file a claim is not uncommon, but it is advised to submit a claim as quickly as possible. 
  4. Take out a personal loan: When a car insurance repair is urgent, taking out a loan might be the best option. It will likely get you, your vehicle, and other parties involved back on the road sooner. 
  5. Consider supplemental options: You can choose to use a credit card or ask family or friends for assistance to pay your car insurance deductible, but we recommend seeking advice from an expert before making any upfront financial decisions.

Don’t fret if you can’t pay your car insurance deductible after an accident right away. Knowing when to adjust your deductible and when to shop around for a new car insurance company with affordable rates is the safest way to avoid high expenses in the future. 

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