Car Insurance Deductible

Car insurance is tax-deductible for self-employed people who use their car for business reasons, as well as for select other occupations. For example, car insurance is tax deductible for armed forces reservists who travel for duty, some performing artists, employees with impairment-related work expenses, and certain government employees who are paid via fees-per-service.

Business use means trips taken for work, but commuting to and from work is not deductible. For example, a photographer's drive to her studio would not be deductible, but her drive from her studio to a client's house during working hours would be. However, if the photographer had a studio in her house, then her drive from her home studio to a client's house for work purposes would qualify as tax deductible.

How to Deduct Car Insurance on Taxes

Car insurance can be deducted by eligible taxpayers based on either mileage or actual cost. If you choose to deduct based on mileage, the official rate – $0.58 per mile in 2019 – incorporates all the expenses that go into driving, so insurance cannot be deducted separately. On the other hand, deducting based on actual expenses requires taxpayers to add up costs like insurance premiums, repairs, gas, tires, and registration fees.

Self-employed taxpayers can use Schedule C to deduct their vehicle expenses, whether using actual cost or mileage. Other eligible taxpayers can use Form 2106 for Employee Business Expenses.

Car Insurance Tax Deductibility Tips

• If a car is used exclusively for business, the entire amount of its actual cost can be deducted.
• If a car is driven for both business and personal reasons, the total cost can be prorated. For example, if the car is used for business half of the time, half of its actual cost can be deducted.
• If a taxpayer is deducting based on mileage, they should keep careful track of their work-related miles and can deduct only that amount.

Regardless of which type of deduction you choose, it's important to keep careful records of business vehicle use. In addition, it's usually best to calculate your deduction using both the actual value and mileage methods, so you can choose the method that gives you the highest tax savings. If you're still unsure whether you can deduct your car insurance, visit the IRS website or talk to a tax expert.

Choosing between a $500 and $1,000 auto insurance deductible depends on how much you can afford right now and how much you expect to save for emergencies moving forward. A lower car insurance deductible means you'll pay less out of pocket in the event of an accident but pay more upfront in premiums. A higher deductible means you'll pay less upfront in premiums but more in the event of an accident.

Drivers nationwide save an average of 8% - 10% on car insurance premiums by increasing their deductible from $500 to $1,000, according to a survey commissioned by InsuraQuotes. But where you live plays a big role in how much you could potentially save by choosing a higher deductible. Drivers in Michigan can save an average of just 4% on premiums by increasing their deductible from $500 to $1,000, while drivers in Massachusetts can save as much as 19%.

Car insurance companies typically use a $500 deductible to give quotes, which means you'll need to make a point of checking how things change with a $1,000 deductible. In doing so, remember that premium savings from a higher deductible will not always be proportional to the extra out-of-pocket costs after an accident.

As a result, you'll need to figure out how much you would save on your premium with the $1,000 deductible and whether those savings are worth an extra $500 out of pocket if you have an accident. If not, you might be better off paying a higher premium in return for lower financial risk on the back end. That's especially true if your vehicle is worth a relatively low amount. For example, if you have an old car that's only worth $2,500, you don't want to carry a deductible of $1,000. It's too close to the total value of your vehicle, which means the replacement cost wouldn't put much more stress on your finances than the deductible itself.

When choosing between auto insurance deductibles of $500 & $1,000, consider your:

• Car's value
• Income
• Monthly expenses
• Savings/reserve funds
• Available revolving credit

It might be worth comparing your premium quote with other deductibles, too. Some companies offer lower and higher options in addition to the more popular $500 and $1,000 deductibles. You'll commonly see $100, $250, or $2,500 deductibles available on car insurance policies.

Although higher deductibles can keep premiums low, it's important to think about what you can afford if something happens. You won't be happy if you can't get your car fixed because you picked a $2,500 deductible and don't have enough money to pay it. So, make sure to factor in how much you'll realistically be able to pay out of pocket without much stress.

No matter what you decide, be sure to set aside enough cash to cover your deductible before you need to make a claim.

Nationwide Vanishing Deductible lowers the cost of your deductible by $100 for every year of safe driving. You can save up to $500 total with Vanishing Deductible from Nationwide, which is an optional feature that costs about $60 per year to add to your policy. Adding more than one vehicle to the program costs $10 per car.

In other words, Nationwide's Vanishing Deductible lowers your deductible but increases your premium. Your premium is the total amount you pay for coverage. Your deductible is your out-of-pocket expenses when filing a collision or comprehensive claim. Only drivers who carry collision and comprehensive coverage are eligible for Vanishing Deductible.

How Vanishing Deductible from Nationwide Works:

1. Call your Nationwide agent or customer service at 1 (877) 669-6877 and let them know you'd like to participate in the Vanishing Deductible program.
2. Pay for coverage and wait 30 days, then get the first $100 credit.
3. Save $100 per year, up to $500 total, as long as you do not file a claim.

If a claim is filed, your Vanishing Deductible resets to $100, still offering savings. Here's an example: A driver with a $500 deductible signs up for Vanishing Deductible. After three years of safe driving, they have earned a $300 credit toward their deductible, but they need to file a claim. The driver pays just $200 toward the deductible and Nationwide covers the rest of the bill. The driver's Vanishing Deductible resets to $100 after resolving the claim.

Vanishing Deductible is just one way Nationwide helps drivers save after a claim. Nationwide also offers accident forgiveness, which can prevent your premiums from going up after your first accident. But Nationwide's Vanishing Deductible and accident forgiveness are not available in all states—laws in Pennsylvania and New York prevent insurance companies from offering $0 deductibles, for example. If you live in one of these states, you might still be able to participate in the program. Your deductible just won't get any lower than the state minimum deductible, which is typically $100.

Other companies offer copycat deductible reduction programs—Allstate, Liberty Mutual, The Hartford, and Allied Insurance all have similar offerings, for example. However, Nationwide trademarked the term “Vanishing Deductible” in 2010.

A good deductible for auto insurance is an amount that the policyholder can afford after an accident or unexpected event. The most common auto insurance deductibles are $500 and $1,000, but drivers should take several factors into account before deciding which amount is right for them. These include what premium they can afford and how likely they are to file a claim.  

Since policies with a lower deductible cost more, it can be tempting to choose a high deductible. But your deductible shouldn't be more than you can comfortably afford to pay out of pocket if your car is damaged. If your deductible is too high, you could be putting yourself in a difficult financial position down the road.

You can choose different deductibles for separate types of coverage, so you should consider how likely you are to file each type of claim. For example, if you live an in an area that is prone to natural disasters, consider getting a comprehensive insurance policy with a low deductible. Similarly, if you've never had an accident and you live in a low-traffic area, consider choosing a high-deductible for your collision insurance policy.

Every driver's financial situation is different, so there is no such thing as a one-size-fits-all deductible. To learn more, check out WalletHub's guide to car insurance deductibles.

A vanishing deductible is a car insurance program where safe drivers pay a recurring fee in exchange for lower deductibles in the event of an accident. The longer a driver goes without a claim, the lower the deductible can go. In some cases, drivers might enjoy a deductible of $0. Several car insurance companies offer this type of feature, including 3 of the 10 largest auto insurers nationally. But vanishing deductibles are most commonly associated with Nationwide Mutual Insurance Company, and for good reason. Nationwide trademarked the term “Vanishing Deductible” in 2010.

A couple of notable copycat programs include The Hartford's Disappearing Deductible and Allstate's Deductible Rewards. Perhaps the biggest competition for this type of program, however, is good old-fashioned budgeting and saving. Drivers can simply save the money they would be paying in fees in order to easily meet their normal car insurance deductible in the event of an accident.

Vanishing Deductible from Nationwide and similar deductible-reduction programs from other companies reward drivers for not making claims. The longer you're claim-free, the more you stand to save. These programs are not free to participate in. Prices and rules vary by company, but they all operate in the same basic fashion:

• You inform your car insurance carrier that you'd like to participate in the program.
• You pay a recurring fee on top of your regular insurance premiums to participate. It could be monthly, quarterly, etc.
• After a certain period of claim-free, accident-free driving (one year, five years, etc.), your deductible drops a certain amount—for example, $50 or $100.
• The deductible continues to drop by regular increments as long as a claim is not filed on your policy. In some states, the deductible could stay at a capped low rate, or disappear altogether.
• If a claim is filed, the deductible usually resets to the amount it was when you started the program.

There are several caveats to keep in mind when choosing to enroll in a vanishing deductible insurance program. First, you might not be eligible if you've recently filed a claim – in the last 3 years, for example. And even if this type of program is available to you, there's some important fine print to keep in mind.

Caps on How Much You Can Save. Most companies cap the extent to which your deductible can “vanish.” For example, Nationwide's Vanishing Deductible customers will never see more than a $500 reduction on their deductible, no matter how long they pay the enrollment fee or go accident-free. Allstate's Deductible Rewards program has the same limit.

You Can't Predict or Control Damage. You can drive carefully to avoid an accident, but that doesn't protect you from all misfortune. Something beyond your control, such as vandalism or weather-related damage, could still force the need to file a claim. That would cause your future savings to vanish by returning your deductible to normal.

Different Pricing Structures. Some companies charge per car to enroll in the program. In Nationwide's offer, a single vehicle can join the program for $60 per year, and each additional car may be added for an extra $10 per year.

State Law Restrictions: Laws in Pennsylvania and New York prohibit companies from offering a $0 deductible.

Ultimately, consider your driving habits, accident record, and willingness to bet on the safety of your car where you park and drive it. In addition, remember that a vanishing deductible is not the same as a vanishing premium (taking funds from an accrued life insurance policy to meet premiums instead of paying for them out of pocket).

It's a good idea to ask your insurance agent about whether or not you're a good fit for car insurance with a vanishing deductible. It's an even better one to crunch the numbers yourself to see whether paying a recurring fee for a potentially capped discount is worth it.