When shopping for car insurance, there are two main costs to be aware of: policy premium and deductibles.
The policy premium is the cost you will pay to an insurance company for providing the policy coverages and features listed in the policy. This is a recurring fee to maintain the policy, although it will likely change at your renewal period based on the company’s updated rates and your personal metrics.
On the other hand, a deductible is an amount you may owe in the event you have a covered auto insurance claim. There are different coverages that have a deductible, and these coverages have several different deductible options.
Choosing an auto insurance deductible is a personal choice and may be dictated by your budget. Consider these important factors when deciding which deductible is right for you.
What is an auto insurance deductible?
A car insurance deductible is the amount of money you agree to pay out of your own pocket for car repairs or replacement after an accident. If you are involved in an accident causing $5,000 of damage to your vehicle, and you have a $500 deductible, the insurance company should pay $4,500 of the claim while you are responsible for $500.
Your insurance deductible amount is something you will determine with your insurance agent or carrier before finalizing your auto insurance policy. However, you should have the option to change your deductible at any time.
What types of car insurance deductibles are there?
Your auto insurance policy is a package of different coverages. Some coverages, like liability, pay the other party for injuries and damages if you cause an accident. But other coverages — such as comprehensive, collision, personal injury protection and uninsured motorist property damage — exist to help cover injuries to those in your vehicle and damage to your car. These coverages may have deductibles, or at least the option to include a deductible to reduce the cost of coverage.
Here are a few coverages that usually have a deductible or the option to choose one:
Optional collision coverage pays for damage to your vehicle resulting from a collision with an object (e.g., telephone pole, guard rail, mailbox, building) when you are at-fault. While collision coverage will not reimburse you for mechanical failure or normal wear-and-tear on your car, it will cover damage from potholes or from rolling your vehicle.
The average cost of collision coverage is typically about $300 per year, according to the Insurance Information Institute (Triple-I). If you file a claim for damage to your vehicle under collision coverage, the deductible on your policy will apply.
Optional comprehensive coverage provides protection against theft and damage to your vehicle caused by an incident other than a collision. This includes fire, flood, vandalism, hail, falling rocks or trees and other hazards, such as hitting an animal.
According to the Triple-I, the average cost of comprehensive coverage is typically less than $200 per year. If you file a claim for damage to your vehicle under comprehensive coverage, the deductible on your policy will apply.
While there are many instances in which a deductible can apply, there are some scenarios where your comprehensive deductible does not apply. For example, if you have a chip or crack in your windshield, your insurer will repair the damage with no deductible in Florida, Kentucky and South Carolina. Some insurers offer zero-deductible comprehensive coverage, which means you would not pay anything if you filed a claim for any comprehensive damage but your premium will be higher.
Uninsured/underinsured motorist property damage
If you are involved in an accident with an uninsured driver or one without enough coverage to pay for your car’s damage, or in the case of a hit-and-run, you may be able to file a claim under your uninsured/underinsured motorist property damage coverage. This coverage is not available in every state, but it may have a state-mandated deductible amount in those where it is. In the cases where a deductible applies, it is generally low, between $100 to $300.
Personal injury protection
Depending on your state, you may have personal injury protection (PIP) coverage on your policy. This coverage helps pay for medical expenses for you and all passengers in your vehicle. It can also help cover expenses related to lost wages or if you need someone to do household tasks after an accident because you cannot do so. Depending on your state, you may have a deductible that applies if filing a claim under this coverage. Many states with PIP deductibles provide several options to choose from, and the deductible you choose can impact your premium.
What car insurance coverage types do not require a deductible?
Liability coverage is required in most states and helps cover injuries and property damage for the other party or parties if you are at fault in an accident. When you buy liability coverage, you will choose a specific amount of coverage. These coverage limits are the maximum amount the insurance company will pay the other party for a covered claim. Because liability coverage extends to others to whom you injure or cause damage, there is no deductible.
If you choose optional coverages like roadside assistance or rental car reimbursement, there is generally no deductible, though there may be coverage limits and caps on the amount of claims you can file for these add-ons.
What is the average car insurance deductible?
Generally, many drivers carry policies with $500 comprehensive and collision deductibles, but there are usually other levels available. Most companies offer options for $250, $500, $1,000 or $2,000 deductibles. Some auto insurance companies offer different options for deductibles, including a $0 or $100 deductible. Your comprehensive and collision coverages do not have to match, either; it is not uncommon to have a $100 comprehensive deductible but a $500 collision deductible, or a $500 comprehensive deductible and $1,000 collision deductible.
What you end up with will depend on how much you have budgeted to spend on car insurance each month and how much you can afford to pay out of pocket if you end up needing repairs. Generally, the lower the deductible, the higher your insurance premium. It is important to consider your overall financial health when choosing a deductible.
Factors to consider when choosing a car insurance deductible
There are several things to consider when choosing your car insurance deductible amount. We have covered some of them here:
Do you want to pay less for car insurance or repairs?
A higher deductible will generally lower your insurance premium, but you will pay higher out-of-pocket costs if you file a claim for damage to your vehicle. Some claims may even be covered under your deductible and you will have to pay the entire amount out of pocket. For example, if you back into a tree and do $350 worth of damage to your vehicle and your collision deductible is $1,000, you will pay out of pocket for all the repairs.
If you opt for a lower deductible, your car insurance premium will likely be higher, but you will have fewer costs if you file a claim. If your deductible is $100 and you cause that $350 damage by backing into a tree, you only have to pay your $100 deductible, while your insurance will pay the other $250. However, you could spend more on your premium by having a lower deductible and never end up filing a claim. This is the nature of having insurance coverage and an example of the risk both you and the insurer take on.
How much can you afford to pay out of pocket?
Before you choose a deductible, it is important to figure out what you can afford to pay if your car is damaged in an accident. If that amount is $500, you probably should not choose a deductible higher than $500. If you do, you may not be able to afford to fix your vehicle if you are at fault and need to pay the deductible for repairs.
Does your lender have deductible requirements?
If your vehicle is financed or leased, you will probably need to carry comprehensive and collision coverages for your vehicle. If that is the case, you will need to choose deductibles for each. Some lenders will have a maximum deductible that you are allowed to carry for comprehensive and collision. It is important to check with the financial institution that handles your loan or lease to determine if these restrictions exist.
When are you not required to pay your car insurance deductible?
There will be occasions when you are not required to pay your deductible, but those are few and far between. In general, you will not be required to pay your deductible when:
Another driver is at fault
If another driver is at fault for hitting you and they are insured, you should not be responsible for paying a deductible on the claim that you file through their insurance company. Your deductibles only apply when filing a claim with your insurer.
If you have a diminishing deductible
Some insurance companies offer a diminishing deductible, or vanishing deductible, option. If you have this policy feature, the longer you go without an accident results in a reduction in the amount you would have to pay for your deductible. Usually, it is a $100 credit applied towards your deductible amount each year you are accident-free. So, for example, if you have a $500 collision deductible and do not have an accident for four years, you could receive a $100 reduction every year. Then, if you needed to file a claim, your deductible would be $100 instead of the original $500. Once you use your diminishing deductible, there is usually a time period to qualify for it again. Speak with your insurance agent or carrier representative to see if this feature is available and their criteria.
Frequently asked questions
What does it mean when you have a $1,000 collision deductible?
If you have a $1,000 deductible, you will pay $1,000 out of pocket if you have an approved claim covered under collision. For example, if you file a claim for $5,000 worth of repairs, you will pay $1,000 and the insurance company will pay $4,000.
Do you pay a deductible if you hit another car?
There are a few different coverages on your policy that could respond to you hitting another vehicle when you are at-fault for the accident. Your bodily injury liability and property damage liability will pay for the damages to the other party, and those coverages do not have a deductible. But if you have collision coverage and you want the insurance company to step in to cover the repairs to your vehicle, you will have to pay your collision deductible.
Do you pay a deductible if you are not at fault?
This depends on the circumstances. If the accident was the other driver’s fault, their liability coverage should pay for your damages and you should not have to pay a deductible. However, if the other driver is uninsured or underinsured, you may be responsible for paying a deductible depending on how your coverage applies to cover the expenses. If you are hit by another driver whose insurance company denies the claim, or if you are involved in a complicated claim that is taking a long time to be settled, you can use your collision coverage to pay for your damages. Your insurance company will pay for your damages, minus your deductible, and then ask the at-fault driver’s insurer to pay the money back in a process called subrogation.