Car Insurance Deductible: How Does It Work?

All sorts of uninsured/underinsured motorist property damage coverage have deductibles. It includes comprehensive coverage, collision coverage, personal injury protection, and uninsured/underinsured motorist bodily injury coverage. All carry deductibles that you should meet before filing any claim.

Usually, you file a claim with your insurer to cover the cost of repairing your car if it has been damaged in an accident. For example, if you have comprehensive coverage, you can also claim the repair cost directly from your insurer.

However, before your auto insurance company pays to have the damage repaired, your deductible is deducted from the amount of your claim payout. Car insurance deductibles are typically fixed, such as $500 or $1,000, and are not subject to change.

If you choose your auto insurance deductible incorrectly, it can have serious financial ramifications on your future. Many people are perplexed and frustrated by deductibles, which is understandable when considering the wide range of available options. When it comes to car insurance, deciding whether to opt for a high premium or a high deductible can be difficult.

Understanding the differences between low-deductible and high-deductible plans, as well as the monthly premiums, can help you make the best decision. To begin, however, you must consider all of the relevant factors, such as your financial situation and other pertinent circumstances.We have tried to provide you with the most relevant and updated information on car insurance deductibles in this article.

What is meant by a deductible?

For certain types of insurance, coverage deductibles are required. For example, there is no auto insurance deductible in the case of a liability claim. A deductible is an agreed-upon amount you are responsible for paying on your own after an accident which is your faul.

Let’s look at an illustration of this. Your car collides with a fire hydrant when you were reversing your car, resulting in $3,000 in repair expenses. You will need to file a collision claim with your auto insurance company to ensure that the repairs are covered.

If you choose a $500 deductible, this is the amount you will be responsible for paying out of pocket, while your insurance company will cover the remaining $2,500.

What are car insurance deductibles and claim costs?

The amount of money paid when filing a claim for an insured loss is called the “deductible.” In essence, if you are involved in a car accident and file a claim, the amount of payment claimed will be reduced by the amount of your insurance deductible.

Your car insurance deductible is usually a predetermined amount, such as $500, that you must pay. If the insurance adjuster determines that your claim is worth $6,000 and you have a $500 deductible, $5,500 is reimbursed for the claim you filed. However, not every car accident is worth filing a claim depending on your deductible.

Repairing a small dent in your bumper caused by backing into a tree could cost up to $600 in parts and labor. It is preferable to pay all the damage out of pocket. That is, the additional $100 on top of your $500 deductible. It avoids increasing your car insurance rates — rather than filing a claim because filing a claim can cause premiums to rise.

How do car insurance deductibles work?

Automobile insurance deductibles vary depending on the policy and driver. You can select your deductible when you purchase your policy. When comparing auto insurance policies, it is critical to consider the deductible options available to determine the best option for you.

Car insurance shoppers who want to save money on their coverage should consider raising their deductibles when getting quotes. However, drivers who do so should be aware that they may have to pay more money out of pocket if someone files a claim against them.

Let’s say a repair shop estimates that the damage caused by accident will cost $5,000 to repair. Assuming you have a $500 deductible on your auto insurance policy, the insurer will deduct $500 from the $5,000 payout to cover the damage. It means that you’ll receive $4,500 to cover the cost of the repair, with the remaining $500 being your responsibility.

When you purchase the policy, you can choose your deductible amount. You are typically responsible for paying your deductible every time you file a claim. It is possible to change your deductible, but the change does not apply to existing claims.

The $500 deductible is the most commonly encountered on car insurance policies. Deductible amounts range from $100 to $1,000 or more, depending on your insurance company and where you live in the world.

Which auto-insurance coverage types have deductibles?

As there are different types of auto insurance coverage, there are also other deductibles based on those different types of coverage. It’s critical to understand how much the car insurance deductible is for each type of policy so that you’ll be aware of how much you’ll be responsible for in the event of a claim.

Liability insurance

Liability insurance pays expenses of others injured due to an accident in which you are at fault. Liability auto insurance does not have a deductible like other types of coverage.

Comprehensive coverage

Comprehensive coverage reimburses you for expenses incurred if your vehicle has been damaged due to something other than that of a collision with another car or object. It could include repairing hail damage, hitting a deer, or replacing a cracked windshield, among other things. It will also pay to cover the costs of returning items stolen. The deductible for this type of coverage is typically lower than the deductible for damage as a result of car accident with another vehicle or property.

If you are at fault, collision insurance pays for the repairs to your vehicle. Suppose your car got damaged in an accident with another vehicle or object, such as a tree or a building. It is the highest deductible that you will have with your auto insurance policy in most cases.

Suppose your car hits another vehicle at fault and the owner has adequate insurance. In that case, the damage to your vehicle covers the other driver’s insurance policy. You would not pay a collision deductible in that situation.

Personal injury protect

Personal injury protection (PIP) and uninsured motorist coverage provide a personal injury claim. Personal injury protection pays medical expenses of the driver and all passengers in your vehicle. The uninsured motorist coverage reimburses your costs.

Suppose you had a car accident with a driver at fault but you do not have insurance or enough insurance to cover all of your expenses. This type of coverage does not include in all auto insurance policies, and some do not include deductibles.

What is the average deductible cost?

Deductibles can differ significantly from driver to driver. Because consumers choose various types of car insurance coverage with varying monetary limits when purchasing their insurance coverage.

Most drivers’ most common deductible amounts are $250, $500, and $1,000, respectively. According to the data compiled by MoneyGeek, the average car insurance deductible is approximately $500.

Which deductible amount you should choose, low or high?

Know that you are assuming a smaller portion of the cost of a car insurance claim; you will typically have to pay a higher premium for your coverage. Furthermore, a higher deductible will typically result in a lower premium because you will be responsible for a more significant portion of the cost if you file a claim.

If you already have a car loan, your lender may have specified a minimum deductible amount, so be sure you check before deciding on a deductible amount.

Alternatively, there is no “right” or “wrong” deductible amount; instead, it all comes down to personal preference and where you are comfortable. The rule of thumb is that raising your deductible may be beneficial if you rather pay more for car repairs than for insurance.

Take into consideration the following:

If a high deductible does not make you feel anxious about having to pay more to repair your car, it may be a good idea to have one if you file a claim.

Suppose you already have the money saved up to cover the difference between your repair bill and your insurance claim payout. In that case, you can consider choosing a high deductible.

Suppose you don’t live in an area prone to hail, flooding, or animal collisions, or you have a long commute in an urban area. In that case, you may be less likely to file a claim, which means that opting for a high-deductible policy may not be a bad idea.

What if you are unable to pay your auto insurance deductible?

If your emergency funds have depleted and you cannot pay your deductible, several options are available.

If you have alternate modes of transportation or if your car is safe to drive, you may be able to postpone the repair until you have the necessary funds. However, keep in mind that you must report the claim to your insurer as soon as possible for them to pay it.

Look for lower-cost alternatives to costly repairs. Try getting a few more estimates to see if you can find a lower repair cost. You should get a lower repair cost if the check is given to you. In some cases, repair shops will “waive” the deductible, which means they will perform the work for a lower price than the adjuster estimated or determined.

Look for a payment plan for car insurance deductible that works for you. Inquire with your preferred shop about a deductible payment plan for your car insurance, which allows you to spread the cost of your deductible over some time. You’ll almost certainly have to pay interest, but your car repairs as soon as possible.

The amount of your car insurance deductible is a matter of personal preference. The best one for you will depend on various factors, including your driving record, location, financial situation, insurer, and other considerations. By utilizing the helpful tools provided by Insurance.com, you can compare quotes from multiple insurers at various deductible amounts.

What is a minimum deductible?

Your policy may have a minimum deductible. You can raise your deductible when you want to save money; however, if your company has set a minimum deductible, you cannot do so.

Some companies offer zero deductibles or deductibles that disappear over time, so be sure to inquire about how your deductible works. Look for a policy with a low minimum deductible, or ask whether a zero-deductible option is available.

What types of car insurance deductibles are there?

In the case of automobile insurance, there are numerous types to choose from, each with a different deductible:

Deductibles for collision damage

The amount you pay for car repairs if you have collision insurance and you had an accident after which your vehicle needs to be repaired determined by whether you were at fault or responsible for the accident:

Pay the entire amount

You must pay the entire amount when you are 100 percent responsible.

Pay a portion of the amount

You make a partial payment. If you are 50 percent at fault, you are responsible for paying 50 percent of your deductible.

Deductibles for the entire year

When filing a claim under comprehensive insurance, you are always responsible for paying the entire deductible.

Your deductible is one factor that affects your premium – the higher your deductible, the lower your costs will be in the long run. Make sure to check with your insurance company to confirm the types of hazards that are covered.

Should I choose a low or high deductible amount?

You should keep in mind that because you are assuming a smaller portion of the cost of a car insurance claim, you will typically have to pay a higher premium for your coverage. Furthermore, a higher deductible will typically result in a lower premium because you will be responsible for a more significant portion of the cost if you file a claim.

If you got a car loan, your lender might have specified a minimum deductible amount, so be sure to check with them before deciding on a deductible amount. Alternatively, there is no “right” or “wrong” deductible amount; instead, it all comes down to personal preference and what you are comfortable with

The rule of thumb is that raising your deductible may be beneficial; you would rather pay more for car repairs than for insurance. Take into consideration the following:

If a high deductible does not make you feel anxious about having to pay more to repair your car, it may be a good idea to have one if you file a claim.

Suppose you already have the money saved up to cover the difference between your repair bill and your insurance claim payout. In that case, you may consider choosing a high deductible.

Suppose you don’t live in an area prone to hail, flooding, or animal collisions, or you have a long drive in an urban area. In that case, you may be less likely to file a claim, which means that opting for a high-deductible policy may not be a bad idea.

What are diminishing deductibles?

You may be eligible for a “diminishing deductible,” an optional feature some insurers offer in exchange for being a safe driver. It is also referred to as a “vanishing” or “disappearing” deductible in some circles.

Suppose you avoid car accidents and maintain a clean driving record. In that case, your insurer will gradually lower your deductible due to your good behavior.

For example, an insurer may offer a $100 annual deductible credit for each year that you maintain a safe driving record. In this scenario, if you keep a perfect driving record for three years, your $500 deductible can reduce to $300. The result is that your new deductible will be $200.

What is high deductible vs. low deductible auto-insurance?

Consider the following factors when determining your deductible:

What amount of money can you afford to spend if your car is damaged and no longer works? Suppose you only have one car and rely on it from work. In that case, you probably don’t want a deductible that exceeds the amount of money in your emergency fund.

Unless you file a collision or comprehensive insurance claim, your deductible does not consider. If you file a lawsuit against the liability insurance of another party, there is no deductible to pay.

A low deductible may not be advantageous to you because filing a claim for a small amount can cause your future premiums to rise. They can even rise by more than the amount you may receive. In reality, you would probably refrain from filing a claim for damages unless the amount of the injuries exceed your deductible by a significant amount.

Example: If your deductible is $1,000 and your damages total $1200, you’d probably choose to absorb the $200 and avoid the risk of having your rates raised due to filing the claim.

The question arises: how much money could you save by raising your deductible? And how long would it take for the savings in premiums to more than offset the additional costs if you had to file an insurance claim?

Keep in mind that lowering your deductible amount is only one method of obtaining low-cost auto insurance coverage. Consumers are advised to become familiar with eight aspects of auto insurance that can make a significant difference in their premium.

How much you can save by raising your auto-insurance deductible?

Raise your deductible from $200 to $500. According to the insurance information institute, you are eligible for a 15 to 30 percent premium discount, while raising your deductible to $1,000 may result in a 40-percent premium discount.

However, it varies greatly depending on the state in which you live and your insurance cost after considering any other discounts, your driving record, and the cost of repairing or replacing your car itself. The discount given for higher deductibles varies from company to company.

How can you save money with a deductible?

Even though having a higher deductible means you have to pay a more significant portion of the claim, the majority of people do not file claims every year. For every year that you do not have a claim, you could file one and save money in the process of doing so.

You can tailor your insurance policy to meet your specific requirements by adjusting the deductible. If you can afford a higher rate in one year but later decide that you would like to lower it, it is usually not a problem. Remember that your monthly payments will also change. If you have a high claim rate, your costs may increase.

What are the pros and cons of a low car insurance deductible?

Having a low car insurance deductible can provide you with peace of mind, especially if you’re on a tight financial budget. Suppose an unexpected $500 or $1,000 expense would significantly impact your finances. In that case, it is best to be conservative and choose a low deductible, such as $250. Some companies even offer a $0 deductible when it comes to auto insurance, which means you’ll never have to pay anything extra on top of your regular premiums.

To have a lower deductible means that you will pay more in monthly premiums. Still, you won’t have to worry if something happens to your car because your deductible is lower. It is wise to have a low deductible car insurance policy if you have a history of bumping into another car in the Starbucks parking lot.

If you are leasing or financing your vehicle, you will want to choose a lower deductible. Most lease/finance agreements specify a deductible of $500 or less, so you won’t have to worry about deciding on your own.

Your collision and comprehensive coverage may even drop if you are driving an old beater car or an older model. There is no coverage, and there is no deductible.

What are the pros and cons of a high car insurance deductible?

The most compelling argument regarding a high auto insurance deductible? You will see a reduction in your monthly premiums, sometimes significantly.

According to an insurance information institute, increasing your deductible from $200 to $500 can result in a 15 to 30% reduction in your insurance premiums each year. Increase your deductible from $500 to $1,000, and you could save up to 40%.

Although these figures appear to be accurate, keep in mind that they are only estimates — and that the savings are limited to collision and comprehensive insurance premiums. You will need to crunch the numbers to determine whether or not high deductible car insurance will save you a significant amount of money.

Please make use of Compare’s free auto insurance quote tool to experiment with different deductible amounts and see how they affect your premiums and costs.

Then do a little more math to make sure you’re right. How long does it take for the amount of money you save each year to equal the cost of your high deductible policy? Consider the following scenario: you save $50 per year on premiums by increasing your deductible from $250 to $500, but you have to file a claim.

It will take five years for your savings to equal the amount of money you spent on the trip. Alternatively, if you choose not to file an insurance claim and instead pay for everything out of pocket, your insurance premiums may remain lower in the long term.

What is the most advantageous option? On Compare.com, you can compare prices. Try a couple of different deductibles to see how much you’d save by choosing a $0 deductible over a $1,000 deductible, and then compare the results. You will be able to ensure that you’re making the best decision possible based on your budget and requirements.

Conclusion

In sum, you can save hundreds of dollars on your auto insurance policy by selecting the appropriate deductible amount based on your needs and financial circumstances. If you are deciding between a $500 or a $1,000 auto insurance deductible, consider the various factors discussed in this article and consult with your insurance agent about your options.

It is best not to increase your deductible simply because you cannot make your annual or monthly payments. Instead, conduct thorough research to determine whether there are any other options for lowering insurance premiums. Your auto insurance agent will be able to assess your situation and determine the most cost-effective savings options available to you.

Sandra Johnson

Sandra Johnson

Sandra Johnson was a few years out of school and took a job as a life insurance agent in California, selling coverage door-to-door for Prudential. The experience taught her about the technical components of insurance and its benefits for individuals and society, as well as the misunderstandings people often have about insurance. She has over ten years’ experience in the insurance industry, having worked as both a Broker and Underwriter, assisting clients across a broad range of industries. At Insurance Noon, Sarah diligently gathers all the required information and curates up pieces to provide meaningful insurance solutions. Her personal value proposition is to demonstrate a genuine interest in always adding value for clients.Her determined approach to guiding clients has turned her into a platinum adviser to multiple insurers.