Car Insurance Deductible: What is it? How much is it?

There are two key costs to consider in any car insurance agreement — the policy premium and deductibles. It’s important to know the difference when you’re shopping around for car insurance. 

The policy premium is what you pay to an insurance company in exchange for providing your policy. This is a recurring fee, usually either monthly or annually, that you pay to maintain the policy. This fee could change at your renewal date based on updated rates or changes in personal circumstances.

What does a deductible mean in car insurance? A deductible is an out-of-pocket cost you pay when you have to make a car insurance claim. Auto insurance deductibles can apply in different scenarios, and how much you agree to pay is largely down to personal choice. Read on to learn more about car insurance deductible definitions and how they work.

Are there different types of car insurance deductibles?

Auto insurance can vary greatly in cost and what each policy will cover. Some will cover damages in the event of an accident. Some will cover theft. In certain states, the rules are different for what is covered and what isn’t. 

Whatever your policy covers, there may be deductibles attached to each type of coverage, or you may have the choice to add a deductible to reduce your policy costs.

Deductibles can be included on all of the following claims and insurance coverages.

Comprehensive Coverage

If you opt for comprehensive coverage to protect against theft, damage, fire, flood, vandalism, or other natural hazards, there may be a deductible.

If any of these things occur, you will typically have to pay the deductible agreed in your policy. However, there are some scenarios where your deductible won’t apply. For example, in some states, a deductible won’t apply for a simple crack in your windshield. 

Collision Coverage

This coverage is for repairs to your vehicle if you are at fault in a collision or accident. This deductible has the biggest impact on your policy premium. While the amount is up to you, opting for a lower deductible will raise your premium costs significantly. 

Personal Injury Protection

This type of coverage pays for any medical expenses of you and any passengers in your car. It can also help to cover expenses due to lost wages if you need to take time off work. Deductibles are fairly uncommon for PIP as it’s only an option in a few states. However, if it does apply to your state, it’s worth carefully considering how much you can pay, especially if you end up losing income due to time off work.

Uninsured Driver Property Damage

In some states where uninsured motorist coverage applies, you can make a claim if you have an accident with an uninsured driver. However, some states have a state-mandated deductible amount that must be paid first when making a claim.

Should you have a high or low car insurance deductible?

How much deductible do you need for your car insurance? The benefit of having a higher deductible is that you can reduce your insurance rates, resulting in more affordable car insurance. However, the downside is you will need to pay more out of pocket in the event of a collision or other accident.

Having a lower deductible can save you from paying out large amounts for accidents but it does result in paying more for your insurance.

According to Progressive, the average car insurance deductible is $500. While you could opt for a lower deductible, this could increase your monthly rates by as much as 28%.

The Claims Process and Your Deductibles

How does a car insurance deductible work? When do you pay the deductible on your car insurance? When you make a claim for damage or an accident, you’re on the hook for your deductible, while your insurer covers the rest.

For example, say you get into an accident and the insurance company agrees to cover a $5,000 repair, but your deductible is $500. In this case, you would pay $500 out of pocket and the insurance company would pay the remaining $4,500. 

In some cases, your deductible may result in you getting no help from your insurance company. If, for example, you have an accident with $400 worth of damage, but your deductible is $500, you will simply need to pay for the whole cost of repairs. For cases like these, it’s not worth making a claim.

How To Choose Your Car Insurance Deductible

In an ideal world, you won’t ever have to pay out your deductible amount. It’s impossible to predict, though, and some people like the comfort of knowing they won’t be paying too much if they have an accident. For those who are more concerned with saving regular monthly or annual costs, dialing down that premium is a popular option.

Case Study 1: Collision Coverage

John owns a brand new luxury car and has collision coverage as part of his car insurance policy. One day, while driving, he accidentally rear-ends another vehicle, causing significant damage to both cars. John files an insurance claim and chooses to pay a $1,000 deductible for his collision coverage.

The total repair cost for his car is $10,000. Since he chose a $1,000 deductible, John is responsible for paying that amount, while his insurance company covers the remaining $9,000.

Case Study 2: Comprehensive Coverage

Sarah’s car is parked in a shopping center when a severe hailstorm occurs. The hail damages the exterior of her vehicle, including the windshield. Sarah has comprehensive coverage on her car insurance policy and decides to file a claim. She has a $500 deductible for comprehensive coverage.

The total repair cost for the hail damage is $3,000. As per her deductible, Sarah is responsible for paying $500, while her insurance company covers the remaining $2,500.

Case Study 3: Uninsured/Underinsured Motorist Coverage

Mark is involved in a car accident caused by another driver who doesn’t have insurance. Mark suffers injuries and his car sustains significant damage. Fortunately, Mark has uninsured/underinsured motorist coverage as part of his car insurance policy.

He files a claim and selects a $2,000 deductible for this coverage. The total cost of his medical bills and car repairs amounts to $15,000. Since Mark has a $2,000 deductible, he is responsible for paying that amount, and his insurance company covers the remaining $13,000.