What Is a Car Insurance Deductible & How Does It Work?
A car insurance deductible is the amount of money you’ll pay out of pocket before your insurance company pays the rest of a claim, up to the policy’s pre-set coverage limit. For example, imagine that you have a $500 deductible and a claim for $1,500 to repair your car after you hit someone’s mailbox. You file a claim with your insurance company, which reviews and (hopefully) approves coverage for the full amount, minus your deductible. Then you pay the $500 deductible, and your insurance company covers the remaining $1,000 balance.
The same is true if your claim is $5,000 – you pay $500, and your insurance company pays for the rest. If your claim is $400, however, the whole repair bill is your responsibility. Your insurance company isn’t responsible for paying any bills that don’t exceed your deductible. In most cases, the insurance company will write you or your mechanic a check for the claim amount minus the deductible.
When you buy an insurance policy, you get to choose your deductible. Deductibles can range from $0 to several thousand dollars. The most common deductible amounts for car insurance policies are $250, $500, and $1,000. You can find your deductible amount listed on your car insurance declarations page, which details how much your insurance costs and what coverage you’re getting in return.
The lower your deductible is, the more you pay upfront in premiums. A car insurance policy with a $500 deductible could have a $1,500 annual premium, for example, while a policy with a $1,000 deductible might charge $1,337. In other words, a high deductible costs less up front, but you pay a bigger portion of every claim.
Before deciding on a car insurance deductible, make sure to assess your financial situation. If you have some money saved up, you could use it to pay a high deductible in the event of a collision. That way, you save money on your policy in the short-term and only shell out extra if you really need it. On the other hand, if you don’t want to use savings for car repairs, consider paying more up front for a lower deductible, so your insurance company can cover any future repair bills you might face.
You can learn more about car insurance deductibles below, including when they apply and how to choose the right amount for your needs.
How do car insurance deductibles work for different types of coverage?
Car insurance deductibles work the same way for all coverage types, and you will get to choose your deductible amount for each. For example, you could choose a $500 deductible for comprehensive insurance, which tends to have lower premiums, but $1,000 for collision, which usually costs more. Many people also choose a separate deductible for windshield repair or replacement, which can have deductible options as low as $0.
Not all types of car insurance coverage apply a deductible. Liability insurance, which is required by law in almost every U.S. state, never uses a deductible. Liability insurance covers damages you cause to another person or their property in an accident.
Collision and comprehensive insurance are the most common coverage types that use deductibles. Collision insurance covers your car from accidents, no matter who is at fault. Comprehensive insurance covers damage from events outside of your control, like fires, floods, falling objects, and vandalism.
If you have coverage for personal injury protection (PIP) or uninsured/underinsured motorists, these may also carry deductibles. PIP helps cover medical bills for you and other passengers and is required by some states. Uninsured motorist coverage protects you in the event you are hit by a driver who doesn’t have insurance, or whose coverage limits can’t cover the full amount of damage caused.
How does a deductible affect insurance premiums?
|Deductible||Monthly Rate||Cost Difference|
|$250||$182||27% lower than $100 deductible|
|$500||$129||29% lower than $250 deductible|
|$1,000||$89||31% lower than $500 deductible|
|$2,000||$84||6% lower than $1,000 deductible|
Note: Rates are for a six-month collision coverage policy, per Progessive.com.
As you can see, increasing the deductible lowers the premium. But notice how little you would be saving by jumping from a $1,000 to $2,000 deductible—just 6%. The extra $5 each month in your pocket is almost certainly not worth paying an extra $1,000 out of pocket after an accident.
On the other hand, picking a $1,000 deductible over $500 would save you $40 each month, according to these sample numbers. Over the course of the six-month premium, you would save $240 with the higher deductible ($40 x 6 months = $240). That’s about half of the extra $500 you would have pay out of pocket with the higher deductible after an accident, so the $1,000 deductible policy may be a better value. This is especially true if you are a safe driver with very few claims and/or tend to be a person who manages and saves money well. The longer you can go without filing a claim, the better the value of the higher deductible policy.
How to avoid paying car insurance deductibles
If you’re at-fault for a collision, there’s not much you can do to get out of your deductible, or even to reduce the cost. You could ask the mechanic to bill the insurance company, minus the cost of your deductible, and set up a payment plan for the balance. But mechanics can legally keep your car until the debt is repaid. Or, you could ask the mechanic to bill your insurance company and waive the deductible, as a condition of getting your business. Since repair bills can be high, the mechanic may waive a $250 or $500 deductible in order to get the job. But it’s not likely. It’s also illegal for the mechanic to overcharge your insurance company to compensate for waiving your deductible.
Another reason you’re unlikely to avoid paying your deductible is that most car insurance companies simply subtract the cost from your claim. If your mechanic bills $3,000 in repairs and you have a $500 deductible, your insurer will write a check for $2,500 to cover it. Some companies will pay the mechanic directly, and others will write you a check to pay for the repairs yourself. Either way, they’ll subtract your deductible before processing the claim.
This is why it’s important to set aside the money for your car insurance deductible before something happens, especially if you go with a higher one. Put the cash in an interest-earning account. That way you’ll have the money handy if you need it, and you can earn a little extra in the meantime.
Nevertheless, certain car insurance terminology can understandably lead to some confusion regarding a policyholder’s deductible-payment obligations. That’s especially true when it comes to “fault” and “deductible waivers.”
Do you have to pay your deductible if you’re not at fault?
In most cases, you do not have to pay your deductible if another insured driver hits you. The other driver’s liability insurance should pay for your repairs. If you have collision coverage, you can choose to go through your insurance to repair your car, but you still won’t have to pay the deductible. Your insurance company will seek full reimbursement from the at-fault driver’s insurer.
However, if your damages exceed the other driver’s policy limits and you decide to use your insurance as secondary coverage, your deductible may apply. It will also apply to uninsured/underinsured motorist coverage, if you have it. In both cases, it might be possible recover your expenses in civil court.
If another person files a claim against you, your liability coverage will cover the costs of repairs. You will not pay a deductible to cover damages to the other party. But you will have to pay a deductible to get your own car fixed when you are at-fault. You can also expect to pay all or part of your deductible in situations where fault is shared between you and the other driver. You may be on the hook for any damage you cause that exceeds your policy limits, too.
Quick tips for understanding car insurance deductibles
- A deductible is what you’ll pay out of pocket before your insurer pays the rest of a claim. If you have a $500 deductible and a claim for $2,500, your insurance company will pay $2,000 of the cost. Your insurance company will not pay bills that are less than your deductible.
- You choose your own deductible for each type of coverage. For example, you could choose a $1,000 deductible for collision coverage and a $500 deductible for comprehensive coverage.
- Fault matters when it comes to paying your deductible after an accident. In most cases, you do not have to pay your deductible if another insured driver hits you. But you may have to pay it if fault is shared, and you’ll have to pay it to repair your own car if you have an at-fault accident.
- You probably can’t get around paying your deductible after an accident. If you can’t pay your deductible, you’ll have to ask your mechanic for a payment plan or put the cost on 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 bang for your buck. It’s worth it to check your rate with different deductibles, because the potential savings from raising your deductible could be outweighed by how much more you would have to pay out of pocket after an accident.
Choosing a higher deductible can help you save on insurance premiums, but it’s not the only way to lower the bill. Most insurance companies offer a wide variety of discounts, like paid-in-full, safe driver, bundling, low annual mileage, long-time customer, multiple vehicles, and more. You can also reduce coverage in other ways, like lowering your policy limits or skipping roadside assistance and rental car coverage.
In the end, your car insurance doesn’t do you much good if you can’t afford to pay your deductible. The temptation to keep premiums as low as possible can be strong, but you may end up compromising value if that’s your only focus.
Was this article helpful?