What is the auto insurance deductible?

The car insurance deductible may be a standard part of insurance policies, but that doesn’t mean everyone understands what it is or how it works. In fact, some drivers don’t realize that their deductible can affect how much they pay for auto insurance. Therefore, in this article we explain everything about how car insurance deductibles work.

What is the car insurance deductible and how does it work?

What is the car insurance deductible?

First of all, and explained simply, the auto insurance deductible is the amount of money of a claim that you will pay out of pocket before your insurance company pays the rest, up to the coverage limit pre-established in the policy.

For example, imagine you have a $500 deductible and a $1,500 claim to repair your car after you hit someone’s mailbox. You submit a claim to your insurance company, which reviews and (hopefully) approves coverage for the full amount, minus your deductible. Then, you pay the $500 deductible and the company takes care of the remaining amount, that is, the $1,000.

The same is true if your claim is for $5,000, you would pay $500 and the company would be responsible for the rest. However, if your claim is for $400, the entire repair bill is your responsibility. Why? Well, because the company is not responsible for paying any bill that does not exceed the deductible..

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How do auto insurance deductibles work for different types of coverage?

The car insurance deductible works the same way for all types of coverage, and you’ll be able to choose the amount of the deductible for each. For example, you can choose a $500 deductible for comprehensive insurance, which tends to have lower premiums, but $1,000 for collision coverage, which tends to cost more. Many people also choose a separate deductible for windshield repair or replacement, which can have options as low as $0.

Now, not all types of car insurance coverage apply a deductible. For example, liability insurance, which is required by law in almost every state in the United States U.S, never use a deductible, since the insurance covers damage caused to another person or their property in an accident.

Collision insurance and comprehensive insurance are the most common types of coverage that use deductibles. Collision insurance covers your car from accidents, no matter who is at fault; while comprehensive insurance covers damage from events beyond your control, such as fires, floods, and vandalism.

And if you have personal injury protection (PIP) or uninsured or underinsured motorist coverage, these may also include deductibles. In this regard, PIP coverage helps cover your and other passengers’ medical bills, and is required by some states. Uninsured motorist coverage protects you in the event you are hit by a driver who does not have insurance, or whose coverage limits may not cover all of the damage caused.

How does a deductible affect car insurance premiums?

Deductible monthly rate cost difference
$100 $250 None.
$250 $182 27% less than the $100 deductible.
$500 $129 29% less than the $250 deductible.
$1,000 $89 31% less than the $500 deductible.
$2,000 $84 6% less than the $1,000 deductible.

Note: Rates are for a six-month collision coverage policy, for progressive.

As you can see, raising the deductible lowers the premium, but look how little you would save by going from a $1,000 deductible to $2,000, just 6%. Simply put, the $5 that would go into your pocket each month is not worth it since you would have to pay $1,000 if you have an accident.

On the other hand, based on the numbers in the table, if you choose a $1,000 deductible over a $500 deductible, you’ll save $40 each month. Over the course of the six-month premium, you’d save $240 with the higher deductible ($40 x 6 months = $240). That’s about half of the extra $500 you’d have to pay out of pocket with the higher deductible after an accident, so the $1,000 deductible policy may be a better deal. This is especially true if you are a person with a good driving record and save your money well. The longer you can go without filing a claim, the better the value of the policy with the highest deductible.

Moral of the story: make sure you consider value as well as cost.

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What is the average car insurance deductible?

On average, most drivers have policies with a $500 deductible, but you can purchase a policy with a deductible of $250, $500, $1,000 or $2,000. Of course, there are other options too, and as we’ve mentioned you can choose a different amount for your comprehensive and collision coverage. It’s not uncommon to have a $100 deductible for comprehensive coverage, but a $500 deductible for collision coverage, or a $500 deductible for comprehensive coverage and $1,000 for collision coverage. What you get will depend on how much you’ve budgeted to spend on your car insurance each month and how much you can afford to pay out of pocket if you end up needing repairs.

Factors you should take into account when choosing the deductible of auto insurance

Do you want to pay less for insurance or repairs?

As we have seen, a higher deductible will give you a lower insurance premium, but you will end up paying more in case your car needs any repairs. In fact, if you have an accident and the damage is worth $350 and your deductible is $1,000, you will be paying out of pocket for all the repairs.

If you opt for a lower deductible, your car insurance bill will be higher each month, but you will have lower expenses. In this sense, if your deductible is 100 dollars and your car suffers a damage of 350 dollars, then you will only have to pay 100 dollars, and the insurance will take care of the rest.

How much can you really afford?

Before choosing a policy for your car, it is important that you find out how much you can really pay in case of damage. If it’s $500, don’t choose a deductible higher than this amount, even if you save a good amount of money each month. Murphy’s Law will kick in at some point and you’ll have a hard time coming up with the money for your share of the repairs. Being in an accident is stressful enough; and it is certainly infinitely more stressful trying to come up with the money to pay the deductible.

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How likely are you to have an accident or a claim?

If you’re an accident magnet, it’s probably best to choose a low deductible because you’ll probably have to pay it at some point. And even if you’re a responsible driver who’s never had a mishap on the road, it’s best not to gamble with your luck. Nearly 20% of drivers with comprehensive and collision insurance will file a claim requiring them to pay their deductible in any given year.

Situations in which you do not have to pay the car insurance deductible

There will be times when you won’t be required to pay the deductible, but these are few and far between. In general, you will not have to be responsible for the deductible when:

The accident was caused by another driver

If the accident is the responsibility of the other driver and he has insurance, then you should not have to pay the deductible. After all, it’s a claim against their insurance, not yours, and the deductible only applies when claiming damage to your car with your insurance company. Think of it this way: If your insurance has to pay for the repairs, you’ll also have to pay the deductible. But if someone else’s insurance is paying for the repairs, that person will pay their own deductible..

You choose not to repair your car

You don’t have to get your car repaired just because you make an insurance claim for damage. In many cases, the insurance company will send a check for their damage estimate minus your share, which is the deductible. If you choose not to repair your vehicle, you can keep the claim money, but the value of the vehicle will obviously be reduced due to damage.

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Quick tips for understanding car insurance deductible

  • A deductible is the part of a claim that you will pay out of pocket before the insurer takes over its share.. If you have a $500 deductible and a $2,500 claim, your insurance company will pay $2,000. Now, the insurance company will not pay bills that are less than the deductible amount.
  • You can choose your own deductible for each type of coverage. For example, you can choose a deductible of $1,000 for collision coverage and $500 for comprehensive coverage.
  • The cause of the accident is important when it comes to paying the deductible. In most cases, you don’t have to pay your deductible if your car is hit by another insured driver.
  • If you can’t pay your deductible, you’ll need to ask your mechanic for a payment plan, or charge it to a credit card.
  • Compare rates with different deductibles to get the best deal. Higher deductibles mean lower premiums, but that may not be the best deal for your situation.. It’s best to check your rate with multiple deductibles, as the potential savings from increasing your deductible could be outweighed by the amount you’d have to pay out of pocket after an accident.

In conclusion…

Choosing a higher deductible can help you save on insurance premiums, but it’s not the only way you can lower your expenses.

Most insurance companies offer a wide variety of discounts, such as pay in full, safe driver, pooling, low annual mileage, long-time customer, multiple vehicles, and more.

You can also reduce coverage in other ways, such as lowering your policy limits or skipping extra services like roadside assistance and rental car coverage.

In the end, your car insurance doesn’t do you much good if you can’t pay your deductible. The temptation to keep premiums as low as possible can be strong, but can end up compromising the effectiveness of the insurance.

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Frequent questions

What does it mean when you have a $1,000 deductible?

If you have a $1,000 deductible, you will pay $1,000 out of pocket if you have an approved claim. For example, if you file a $5,000 repair claim, you will pay $1,000 and the insurance company will pay the remaining $4,000.

Do I have to pay the deductible if I crash into another car?

Colliding with another car falls within the collision coverage of the policy. This part of the insurance will not take into account who is the cause of the accident. Now, if you crash another car and yours suffers some damage, then you will have to pay the deductible.

Do I have to pay the deductible if I am not the cause of the accident?

This depends on the circumstances. If the accident was written on the police report as the other driver’s cause, your insurance coverage would have to pay for the repairs to your vehicle and the other driver would pay the deductible. However, if the other driver is uninsured or underinsured, you may have to pay the deductible.

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