Car Insurance Deductibles Explained

What is a Car Insurance Deductible?

When you file a claim under a policy's comprehensive, collision, personal injury protection, or uninsured/underinsured motorist property damage coverage, your deductible is deducted.

If your car is damaged—for example, if it has been hit by hail and needs to be repaired—you typically file a claim with your insurer to cover the loss if you have comprehensive coverage. However, before your auto insurance company pays to repair the hail damage, your deductible is deducted from your claim check. Car insurance deductibles are typically set at a fixed amount, such as $500 or $1,000.

Here's a quick overview that we'll go over in depth:

• Deductibles apply to comprehensive, collision, personal injury protection, and uninsured/underinsured motorist property damage coverages.
• The deductible amount is set by you.
• Some states mandate the amount of deductible that must be provided for personal injury protection.
• A higher deductible usually translates to a lower rate.
• When you file a claim, you usually have to pay a deductible.
• Your deductible is deducted from your claim payment; you do not pay the amount to your insurance company.

How Do Car Insurance Deductibles Work?

Assume a repair shop will charge $5,000 to repair hail damage. If your car insurance policy has a $500 deductible, the insurer will deduct $500 from the $5,000 payout to cover the hail claim. This means you'll receive $4,500 to cover the repair costs, with the remaining $500 your responsibility.

When you purchase the policy, you select your deductible amount, and you must typically cover your deductible every time you file a claim. (You can change your deductible, but it will not affect existing claims.)

The most common deductible for car insurance is $500. However, depending on your insurance company and where you live, deductible amounts can range from $100 to $1,000 or higher.

What Types of Car Insurance Deductibles Are There?

The most common types of car insurance with deductibles are comprehensive and collision coverage, each with its own deductible. The deductible for both coverages is usually the same, but it can be different.

Comprehensive coverage pays for damage to your car caused by incidents other than a collision, such as theft, vandalism, bad weather, or encounters with deer. Collision coverage pays for damage to your vehicle caused by a collision with another vehicle or an object (like a fence or utility pole).

The maximum payout for both collision and comprehensive insurance is the value of the vehicle immediately prior to the accident or damage if it is totaled, less the deductible amount.

Deductibles may also be attached to your policy's personal injury protection or uninsured/underinsured motorist property damage coverage.

In some states where personal injury protection is required, laws specify the deductible amounts that must be offered.

There is no deductible on car liability insurance, which covers injuries or property damage caused by you to others.

Should I Choose a Low or High Deductible Amount?

Remember that a lower deductible for car insurance usually means a higher premium because you're assuming less of the cost of a claim. A higher deductible will typically result in a lower premium because you will bear a greater portion of the cost if you file a claim.

If you have a car loan, your lender may require a certain deductible amount, so check with them before deciding.

Otherwise, there is no "right" or "wrong" deductible amount; it all comes down to what you are comfortable with. In general, a high deductible may be worthwhile if you would rather pay more for car repairs than insurance. Take into account the following:

• A high deductible may make sense if it does not make you nervous about having to pay more to repair your car if you file a claim.
• You might choose a high deductible if you already have enough money saved to cover the difference between your repair bill and claim payout.
• If you don't live in an area prone to hail, flooding, or animal collisions, or if you have a long commute or drive in an urban area, you may be less likely to file a claim, so a high deductible may not be a bad idea.

Diminishing Deductibles

Some insurers will reward you for being a safe driver with a "diminishing deductible," which is an optional feature. It is also known as a "vanishing" or "disappearing" deductible.

If you avoid car accidents and keep a clean driving record, your insurer will lower your deductible over time. For example, an insurer may offer a $100 deductible credit each year you remain a safe driver. In this case, if you maintain a spotless driving record for three years, your $500 deductible could be reduced by $300. This means that your new deductible is $200.

When It Doesn’t Make Sense to File a Claim

It's also worth noting that if your deductible exceeds the cost of your car's repairs, filing a claim makes no financial sense. Assume your car's repair bill is $800, but your collision deductible is $1,000. Because the repair costs are less than the deductible amount, you would be responsible for the entire repair bill in this case. In this case, there is no reason to file a claim.

Furthermore, even if your repair bill exceeds your deductible, you should consider whether a relatively low payout amount is worth a potential insurance rate increase at renewal time. For example, if you have a $1,000 deductible and file a $1,600 claim, you will receive $600 to repair your vehicle. However, if you file a collision claim, your insurance company may raise your rates. That means that even though you received $600 to repair your car, you may end up paying more for insurance in the long run.