When shopping for car insurance, there are two main costs to be aware of: policy premium and deductible.
The policy premium is the cost you will pay to an insurance company for providing you the insurance policy. This is a recurring fee to maintain the policy.
The deductible, on the other hand, is an amount that is only owed by you in the event you have an approved insurance claim. There are many car insurance deductible options available whether you are looking for a high deductible policy, a low deductible policy or a policy that falls somewhere in the middle.
Let’s take a look at what a car insurance deductible is and the important considerations that should factor into your decision on what deductible to choose.
What is an insurance deductible?
A car insurance deductible is the amount of money you agree to pay out of your own pocket for car repairs after an accident. Let’s say you’re in an accident that causes $5,000 worth of damage to your car. If your insurance deductible is $250 and your claim is approved, you will pay $250 toward the repairs and the insurance will pay the remainder — in this case, $4,750.
Your insurance deductible amount is something you will review and agree upon with the insurance provider before signing your policy.
What types of car insurance deductibles are there?
While there are three main types of auto insurance coverage, liability, collision, and comprehensive, there are only two types of deductibles. Liability insurance does not require a deductible, but collision insurance and comprehensive insurance do.
Collision offers protection in case you run into something. That something could be a guardrail, a house, or another vehicle. It doesn’t matter what you run into: if it’s a collision, your collision deductible comes into play.
Comprehensive, on the other hand, works to fill in any gaps left by your collision insurance. Damage can occur to your vehicle outside of collisions, and your comprehensive coverage will be what picks up most of the tab. That damage can include vandalism, theft, or weather-related issues, and it will cover you whether the damage was deemed your fault or not.
What’s the average car insurance deductible?
Now that we know what coverage types have deductibles, let’s look at what the average car deductible is. On average, most drivers carry policies with a $500 deductible, but you can buy a policy with a $250, $500, $1,000 or $2,000 deductible. It’s not quite that black and white, though. There are other options, too, and you’re able to pick a different deductible amount for your comprehensive and collision coverage. It’s not uncommon to have a $100 comprehensive deductible but a $500 collision deductible, or a $500 comprehensive and $1,000 collision.
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.
Factors to consider when choosing a car insurance deductible
There are several things to consider when choosing your car insurance deductible amount. We’ve covered them here to get the ball rolling.
Do you want to pay less for car insurance or repairs?
A higher deductible will land you lower insurance premium, but you’ll be paying higher out of pocket costs if you run into something and your car needs to be repaired. If you back into a tree but only do $350 worth of damage and your deductible is $1,000, you’ll 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’ll have lower out of pocket costs. If your deductible is $100 and you cause that $350 damage by backing into a tree, you’re only out of pocket $100, while your insurance will pick up the other $250. However, you may spend more on your premium in order to have a lower deductible, but not end up making any claims. This is the nature of insurance and a dilemma everyone faces.
How much can you afford to pay out of pocket?
Before you choose a policy, it’s important to figure out what you can actually afford to shell out in case of major car damage. If it’s $500, don’t choose a deductible that’s higher than $500, even if it’s going to save you a nice chunk of change each month. Murphy’s Law will at some point come into play and you’ll be struggling to come up with the money for your part of repairs. Being in an accident is stressful enough; it’s infinitely more stressful if you’re trying to scrounge up the money to pay your deductible on top of it.
How likely are you to have an accident or claim?
If you’re an accident magnet, it’s probably best to choose a low deductible because chances are, you’ll end up having to pay it at some point. Even if you’re not a magnet for fender-benders, though, it’s still probably wise to avoid taking too big of a gamble with your insurance. Almost 20% of drivers with comprehensive and collision insurance will make a claim that requires them to pay their deductible in any given year.
When you aren’t required to pay your car insurance deductible
There will be occasions when you aren’t required to pay your deductible, but those are few and far between. In general, you won’t be required to pay your deductible when:
Another driver is at fault.
If another driver is at fault for hitting you and they’re insured, you shouldn’t be responsible for paying a deductible on the claim. It’s a claim against their insurance, not yours, and the deductible only applies when claiming damages to your car with your insurance company. Think of it this way: If your insurance has to pay for the repairs, you’ll have to pay out (deductible), too. But if someone else’s insurance is paying for the repairs, it will be that person who pays their own deductible.
You opt not to get your car repaired.
You don’t have to get your car repaired simply because you make a claim against your insurance for damages. In many cases, your insurance will send you a check for their estimate of the damages minus your portion, which is the deductible. If you opt not to repair your vehicle you can still keep the money from the claim, but it will obviously lower the value of your car to opt-out of repairing it.
Frequently asked 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 in the event you have an approved claim. 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?
Hitting another car falls into the collision coverage portion of your policy. This part of your insurance does not consider fault. If you hit another car and there are damages to your car, you will pay your collision deductible.
Do you pay a deductible if you’re not at fault?
This depends on the circumstances. If the accident was written on the police report as the other driver’s fault, their insurance coverage should take care of the repairs to your vehicle and the other driver would pay the deductible. However, if the other driver is uninsured or underinsured, you may be responsible for paying your deductible.