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How To Choose Your Car Insurance Deductible

motor1 logo motor1 1/29/2020 Brogan Woodburn

a person standing next to a car: Car Insurance Deductible © Motor1.com/Hersteller Car Insurance Deductible

Accidents may be rare, but choosing the right car insurance deductible is still important.

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Let’s say you just got in a wreck and your Toyota Camry needs $4,000 in repairs, but your insurance will only cover $3,000. What’s the deal? Well, you can thank your car insurance deductible for that. In this article, we’ll explain what a car insurance deductible really is, when you need to pay it, and whether you should choose a high or low one.

 

In this article:

  • How Do Car Insurance Deductibles Work?
  • Average Car Insurance Deductibles
  • Types Of Insurance Coverages With Deductibles
  • When Do You Pay A Car Insurance Deductible?
  • When To Choose A High Deductible
  • When To Choose A Low Deductible
  • Vanishing Car Insurance Deductibles
  • What To Do If You Can’t Pay Your Insurance Deductible
  • Frequently Asked Questions
 

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How Do Car Insurance Deductibles Work?

A car insurance deductible is the amount that you pay out of pocket before your insurance provider covers damages after an accident or other event. It usually applies to comprehensive and collision coverage. You don’t actually pay a deductible to the insurance company – you pay it to the repair shop when you fix your car.

Here’s an example. If you have a $500 deductible and need $3,000 in repairs, your insurance company will pay $2,500 toward the repairs. You’ll be responsible for the remaining $500, and the repair shop won’t fix your car until you pay it. Your deductible applies each time you file a collision or comprehensive claim. Depending on your state, you might have a deductible for other types of coverage, too.

Sharing The Risk

The car insurance deductible is a way for drivers to share some of the financial risk of repairs with insurance companies. You can choose your deductible when you sign up for an insurance policy. If you take on more risk by choosing a higher deductible, your provider will reward you with a lower insurance rate. That’s because you’re promising to cover more of the repair costs when you get into an accident.

On the other hand, if you want the insurance company to bear more of the financial burden, you can choose a lower deductible. In that case, the company will charge you a higher premium since it anticipates paying more when you get into an accident.

Health Insurance Vs Car Insurance Deductible

Your car insurance deductible doesn’t work like your health insurance deductible. With health insurance, you have a deductible that gets reset every year. As you use health services, the money you spend out of your own pocket will add up. Once it hits the deductible amount, your health insurance takes over. When the new year rolls around, it all starts over.

With car insurance, you pay your deductible every time you file a claim. Let’s say you got into an accident and filed a collision claim. On your way to the repair shop, a freak hail storm adds more damage to your car. You’ll file a separate comprehensive claim for that damage, and you’ll pay your deductible on both claims. There is no limit to how many times you pay your deductible in a year. If you file five different collision claims in one year, you’ll pay your deductible five times.

Average Car Insurance Deductibles

Insurance companies give drivers different deductible amounts to choose from, and most options fall between $100 and $2,000. Many people choose a $500 car insurance deductible, and companies usually use $500 as the default choice. However, $250 and $1,000 are popular choices, too.

Another thing to know is that you can select different deductible amounts for different types of coverage. For example, if you live in an area with frequent bad weather, you might want to choose a lower comprehensive deductible to limit what you pay out of pocket. At the same time, you can keep your collision deductible higher to balance out your insurance premium.

Types Of Insurance Coverages With Deductibles

Here are the common types of car insurance, with details on what they cover and whether they require a deductible or not.

Insurance Type Coverage Details Deductible
Collision Covers damage to your own car after an accident Yes
Comprehensive Covers damage to your vehicle after non-collision events like hail or theft Yes
Uninsured Motorist (UM) Protects you and your car after getting hit by an uninsured motorist Depends on state
Underinsured Motorist (UIM) Protects you and your car after getting hit by an underinsured motorist Depends on state
Personal Injury Protection (PIP) Covers your medical bills, lost wages, and more after an accident Depends on state
Medical Payments (MedPay) Covers your medical bills after an accident Depends on state
Bodily Injury Liability (BI) Covers the other party’s medical bills in accidents you cause No
Property Damage Liability (PD) Covers the other party’s repair costs in accidents you cause No
 

Keep in mind, even though collision and comprehensive insurance require a deductible, you might be able to select a $0 deductible depending on the policy. In that case, your premium would cost more to offset the $0 car insurance deductible.

When Do You Pay A Car Insurance Deductible?

Here are the main situations in which you’d be responsible for paying a deductible:

  • At-Fault Collision: If you cause an accident and your car needs repairs, you’ll pay your deductible on your collision coverage.
  • Not-At-Fault Collision: Theoretically, you shouldn’t have to pay your deductible if you weren’t at fault in an accident. However, it can take a long time to get a settlement from an insurance claim. During that time, you can fix your car by filing a claim with your own insurance company. In that case, you’ll pay your deductible up front. If your insurance company recovers funds from the at-fault party (through a process called subrogation), it will reimburse your deductible. If not, you can take the other party to small claims court and try to get your money back.
  • Comprehensive Claim: When your car needs repairs after other events like a lightning strike or flood, you’ll need to pay a deductible. Comprehensive also covers glass damage, though some companies may waive your deductible if they can repair the glass instead of replacing it.
  • PIP Claim: No-fault states require PIP coverage. It pays your medical bills no matter who was at fault in an accident. However, many states require you to pay a car insurance deductible before PIP kicks in. The amount can vary, and it can be different than your collision or comprehensive deductible.
  • Uninsured Motorist Claim: UM comes in bodily injury and property damage coverage varieties. Bodily injury UM doesn’t usually require a deductible. However, property damage UM coverage can require a deductible. That means you might have to pay a deductible to repair your car if you get hit by a driver without insurance. The same goes for underinsured motorist coverage.

When To Choose A High Deductible

You should choose a high car insurance deductible if you want to lower your monthly bill and if you have the ability to pay it. That last part is important. If you don’t have any savings, it’s not a smart idea to have a high deductible.

You might be the best driver in the world, but you still share the road with bad drivers and uninsured motorists. According to the Insurance Information Institute, about 6 percent of drivers who had collision coverage filed a claim in 2018. As we mentioned above, you might have to pay a deductible to fix your car even if you weren’t at fault. You can always choose a lower deductible while you save up an emergency fund and then raise the deductible later on.

When To Choose A Low Deductible

You should choose a low car insurance deductible if you don’t have the ability to pay a high one, or if you want to protect your out-of-pocket costs. A low deductible could be a good idea if you live in a congested area where you have a higher chance of experiencing an accident.

A $1,000 deductible is usually the sweet spot for savings. Bumping a $500 deductible up to $1,000 will give you a better discount than increasing a $1,000 deductible further to $2,000. Choosing a $250 deductible over a $100 one will also save you a significant chunk of money.

Vanishing Car Insurance Deductibles

A vanishing deductible program is an extra coverage option that a few providers like Nationwide and The Hartford offer. Each company’s program can be a little different, but they follow the same basic formula. You usually get $100 toward your deductible for each year you go without making a claim.

Some programs limit your savings to $500 no matter the size of your deductible, while others – like Progressive’s Deductible Savings Bank – let your car insurance deductible shrink to $0 if enough time goes by. AAA’s Ultimate car insurance plan has a similar program. Also, some programs will reset your deductible to the full amount after you make a claim, and others will reset it to a smaller amount.

Lastly, these programs aren’t free. They can cost around $20 or more per year. After five years, you would have paid an extra $100 or more to your insurance company. Other than peace of mind, you only get something out of a vanishing deductible program if you get into an accident and file a claim.

We’ve reviewed a number of the top car insurance companies in the industry and ranked them on things like coverage, claims servicing, discounts, and financial strength. If you’re wondering which companies to get quotes for, our review of the best auto insurance companies is a good place to start.

What To Do If You Can’t Pay Your Insurance Deductible

Maybe your rainy day fund just got used up for another emergency. Or, maybe you picked a high car insurance deductible without expecting to pay it so soon. That’s OK – there are still some things that you can do.

Let’s say you took your car to the company’s preferred repair shop, and the shop gave a repair estimate of $4,000. You have a $1,000 deductible, so your insurance company will cover $3,000 in repairs. If you own your car, you should get a check for that amount in your name. Once you have the $3,000 check, you can try to get a lower estimate from other shops. Many shops offer photo estimates that make it easy to get a second opinion. Another shop might offer a better price and let you save money.

Some repair shops also allow you to break your deductible into payments. You might pay a little more overall, but doing so could help you get the repairs done faster.

Lastly, if your car is still driveable, you can put off getting repairs until you have the funds to cover your car insurance deductible. You still need to file a claim right away if you want the insurance company to help out, but most companies will let you delay a repair if you aren’t ready. If you have another form of transportation, you can do this even if your car isn’t driveable.

Frequently Asked Questions

What does it mean when you have a $1,000 deductible?

To have a $1,000 deductible means you will pay the first $1,000 of any collision or comprehensive claim that you file. If you need $2,500 in repairs, your insurance company will send you or your repair shop a check for $1,500 and you will pay the remaining $1,000. Other coverages like personal injury protection and uninsured motorist can have deductibles, as well.

Do you pay your deductible to the car insurance company?

No, you don’t pay your car insurance deductible to your insurance company. Instead, the company subtracts your deductible from the covered amount when your claim is approved. For example, if your car needs $2,000 in repairs but you have a $500 deductible, your insurance company will pay $1,500 to you or the repair shop. You will pay the remaining $500 to the repair shop. On the other hand, if your $10,000 car is totaled and you have a $500 deductible, you will get $9,500 from your insurance company after paying your deductible.

Do I pay a deductible if I hit someone?

If your own car is damaged in the accident, you’ll pay a deductible to fix it (collision insurance). Your liability insurance covers injury and property damage for the other party automatically without requiring a deductible – but your rates will go up. If you use personal injury protection to cover your medical costs, you might have another deductible depending on your state.

Is a higher deductible better for auto insurance?

A higher car insurance deductible will decrease your monthly premiums, but you’ll have to pay a higher amount if you need to file a claim. Auto insurance coverage will work the same whether you have a $100 or $1,000 deductible, the only differences being your monthly bill and your out-of-pocket cost after an accident. A high deductible lowers your premium, while a low deductible raises your premium.

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