What Is a Car Insurance Deductible?

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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.

What to Consider When Choosing Your Auto Insurance Deductible

Picking a deductible for your auto insurance policy can be a stressful experience. If you go too low, you could end up paying a higher premium. But if you go too high, it could be financially devastating if you have to file a claim.

To help you make the right choice for you, here are some things to consider:

  • Your emergency fund: A large emergency fund may allow you to afford a big deductible, which could help you save on monthly insurance costs. If you don’t have a big buffer, though, you may want to opt for a lower deductible.
  • Your lender: If you’ve financed your vehicle, your lender may require certain types of coverage and limits on deductible amounts. So while you may be able to afford a higher deductible, your lender may not allow it.
  • The risk of getting in an accident: If you’ve gotten in several accidents in the recent past, you could be at a higher risk of getting in another one, and a lower deductible may be a better option. Also, consider where you live—people in urban areas are more likely to get in an accident than people in rural areas because traffic is more prevalent.
  • The value of your vehicle: If your car is only worth a couple thousand dollars, you may question whether you need collision or comprehensive insurance, along with their deductibles, at all.

There’s no one-size-fits-all solution for everybody, so it’s important to consider these factors and other aspects of your situation to choose the right deductible for you.

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.

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How Deductibles and Premiums Work Together

Your deductible for each type of coverage could be different from each other. You may have a $500 deductible on your collision coverage, but a $1000 deductible on your comprehensive coverage. It all depends on what options you choose when your policy is crafted by your auto insurance agent. If you purchase your car insurance online, you usually have the option to choose your deductible as you craft your policy.

As a general rule, the higher your deductibles are, the lower your premiums are. You can greatly reduce your monthly cost for car insurance by choosing higher deductibles for your collision and comprehensive coverages. However, keep in mind that if you have an accident you will have to pay this amount right off the top. If you typically don’t have access to $1000, you might want to choose a lower deductible and pay more money in monthly premiums.

If you have to pay more than one deductible in a year, it could cause your premiums or your deductible amount to increase. Your car insurance company will use the claim information from each incident to determine how much risk you have. If you pay several deductibles in one year, it could cost you a lot more in higher premiums.

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.

Raising your deductible can save money

One way to save money on a homeowners or auto insurance policy is to raise the deductible so, if you’re shopping for insurance, ask about the options for deductibles when comparing policies.

Increasing the dollar deductible from $200 to $500 on your auto insurance can reduce collision and comprehensive coverage premium costs. Going to a $1,000 deductible may save you even more.

Most homeowners and renters insurers offer a minimum $500 or $1,000 deductible. Raising the deductible to more than $1,000 can save on the cost of the policy.

Of course, remember that in the event of loss you’ll be responsible for the deductible, so make sure that you’re comfortable with the amount.

 

What Types of Car Insurance Deductibles Are There?

Comprehensive and collision coverage are the most common types of car insurance with deductibles, and each comes with its own deductible. Usually the deductible is the same for both coverages, but you can have different amounts.

Comprehensive coverage pays for damage done to your car by incidents not related to a collision, such as theft, vandalism, weather or run-ins with deer. Collision coverage pays for damage done to your car when you hit another car or an object (like a fence or utility pole).

The maximum payout for both collision and comprehensive insurance is the value of the vehicle right before the accident or damage if it’s totaled, minus the deductible amount.

Deductibles also might be attached to the personal injury protection coverage or property damage coverage in your policy.

In some states that require personal injury protection, laws specify deductible amounts that must be offered.

Auto liability insurance, which covers injuries or damage that you cause to others, does not have a deductible.

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.

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