Quick Facts About Car Insurance Deductibles
- You pay a deductible each time you file a claim with your auto insurance coverage.
- Most drivers choose a $500 auto insurance deductible, but policies with higher deductibles cost less.
- Choosing a plan with a higher deductible to get a lower insurance rate means higher out-of-pocket costs when filing a claim.
Choosing the best car insurance deductible for your budget isn’t easy. However, selecting a deductible is one of the most important things to consider when comparing auto coverage. A high-deductible car insurance policy brings different financial consequences than a policy with a low deductible.
Read on to learn more about how auto insurance deductibles work and how you can decide which amount is right for you.
- What Is a Car Insurance Deductible?
- How Does a Deductible Work?
- Average Cost of a Car Insurance Deductible
- 6 Steps to Choosing a Deductible
What Is a Car Insurance Deductible?
The deductible is the amount you pay out of pocket before your insurance carrier starts paying for repairs. You will have to pay the deductible each time you file a claim. Let’s cover the basics of what a car insurance deductible is and how it works.
For example, if you have a $3,000 repair and a $1,000 auto insurance deductible, you would be responsible for paying $1,000. After paying the deductible, the insurance company would pay the remaining $2,000. However, you’ll pay the entire bill if the repair costs less than the deductible.
Not all types of insurance coverage have a deductible attached to them. In general, deductibles apply to collision,comprehensive, uninsured/underinsured motorist, and personal injury protection.
RELATED: How Much Car Insurance Do I Need?
How Does a Deductible Work?
You get to choose your deductible when you buy your policy. Policies with lower deductibles have higher premiums but lower out-of-pocket costs if you file a claim. And policies with higher deductibles have lower insurance rates but higher out-of-pocket costs if you file a claim.
You pay the deductible when you file a claim with the insurance company. The carrier covers costs that exceed the deductible amount.
When Do You Pay the Deductible for Auto Insurance?
Deductibles apply to some types of car insurance coverage but not to others. Collision, comprehensive, uninsured motorist property damage, and personal injury protection typically have a deductible attached to them. You’ll pay a deductible every time you file a claim under these coverage areas.
You could skip filing a claim to avoid the deductible, but you’ll have to pay the entire repair bill.
What if You’re Not at Fault?
When another motorist is at fault for the accident, that driver’s insurance company is responsible for covering the cost of repairing your vehicle, and you will not need to pay a deductible to have your car fixed.
Average Cost of a Car Insurance Deductible
The average auto insurance deductible is $500. However, car insurance deductibles can range from a few hundred dollars to $2,500. No matter what amount you choose, such as $250, $1,000, $1,500, etc., be sure you can afford to pay it if you need to file a claim.
6 Steps to Choosing a Deductible
When selecting a car insurance deductible, follow these six steps to determine the best amount for you and your wallet.
1. Choose a High or Low Deductible
There is a fairly straightforward relationship between your insurance deductible and the rate you pay for your policy. Plans with lower deductibles usually have higher monthly premiums and vice versa. But if you choose a plan with a higher deductible to get a lower insurance rate, you’ll pay more out of pocket if you file a claim.
| Low Deductible: Better if you want to avoid a large bill after filing a claim, but your monthly rates will be higher | High Deductible: Better if you want lower monthly costs, but if you file a claim, you’ll pay more out-of-pocket |
2. Calculate the Cost Difference
When comparing auto insurance policies, looking at the difference in price between plans with high and low deductibles is a good place to start. But remember that your total cost will vary based on whether you file a claim. It’s best to run a few different calculations and compare your out-of-pocket expenses if you file no claims, one claim, or two claims.
In the hypothetical scenario below, the driver would save $1,116 per year if they had a high-deductible policy and didn’t file any claims. But if the driver filed two claims that year, a low-deductible plan would save them $384 in out-of-pocket costs.
| Low Deductible: $250 deductible plan for $182 per month Annual cost with no claims: $2,184 Annual cost with one claim: $2,434 Annual cost with two claims: $2,684 | High Deductible: $1,000 deductible plan for $89 per month Annual cost with no claims: $1,068 Annual cost with one claim: $2,068 Annual cost with two claims: $3,068 |
3. Are You Likely to File a Claim?
In general, drivers who are more likely to file an auto insurance claim will have lower total costs with a low-deductible car insurance plan. Conversely, drivers who don’t file a claim will typically save with a higher deductible plan. However, when you opt for a plan with a higher deductible, you’re betting that you won’t have an accident.
When considering the likelihood of filing a claim, ask yourself if you have a history of car accidents or engage in high-risk driving behaviors such as speeding or rush-hour driving.
| Low Deductible: Better if you’re more likely to have a car accident | High Deductible: Better if you’re less likely to have a car accident |
4. Determine the Value of Your Car
Depending on where you live, most insurance companies will only pay up to the actual cash value of your vehicle if the insurer declares it a total loss. So, it’s generally better to have a lower deductible if your car’s not worth much.
For example, let’s say your vehicle’s worth $3,500, and you have a $1,500 deductible on your insurance policy. If your car is totaled, the insurer will only pay $2,000 after you cover the deductible.
On the flip side, if your car’s worth $10,000 and you have a $1,000 deductible, the insurance company will pay $9,000. So, having a higher deductible makes more sense.
You will need to calculate how much your car is worth. Then compare its value to your insurance policy costs. And remember, you don’t have to choose the same deductible for every type of coverage you have. An insurance agent may be able to help you mix and match deductible amounts based on your car’s value and the risks you face.
| Low Deductible: Better for cheaper cars | High Deductible: Better for more expensive cars |
5. Evaluate Your Cash Savings
If you do get into a car accident, you’ll have to pay your deductible before the insurance company starts chipping in for repairs.
If you don’t have savings or an emergency fund to cover a high deductible, it may be better to choose a low-deductible policy. The higher monthly bills for insurance premiums may be a better way to protect your finances if you have an accident.
| Low Deductible: Better for those who want to avoid a large, unexpected bill after an accident | High Deductible: Better for those who have savings to cover the deductible after an accident |
6. What’s Your Tolerance for Risk?
Choosing a high-deductible plan is a gamble that you won’t have a car accident. If you do have an accident with a high-deductible policy, you’re still covered. But you’ll pay more out of pocket after the accident than if you had a low-deductible policy.
| Low Deductible: Better for risk-averse people | High Deductible: Better for those who are comfortable taking a risk they won’t have to file a claim |
A High-Deductible Policy Is Good for Those:
- Less likely to have a car accident or file a claim
- With an emergency fund to cover a large repair bill if needed
- Needing to cover a more expensive car
- More comfortable with risk
A Low-Deductible Policy Is Better for Those:
- More likely to file a car insurance claim
- Owning a lower-value car
- Without savings to cover a large unexpected bill
- Risk-averse
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