The deductible is the dollar amount “deducted” from an insured loss. In other words, the deductible is the amount that a person must pay out of pocket for repairs or replacement after an accident. For Example: let’s say you are in a fender bender, the total cost of repairs is $1,000, and your insurance company pays $800. The amount you are responsible for paying (your deductible) is $200.1 For many consumers, determining just how much of a deductible to take can be a difficult decision. Conventional automobile insurance policies generally require the consumer to select one deductible for comprehensive coverage, and a separate deductible for collision coverage, although they may be the same deductible amount. The liability coverage in the policy does not involve a deductible. Comprehensive coverage protects your vehicle from theft and damage not caused by a collision. The deductible on your policy will apply if you file a claim for damage covered by comprehensive, however there are some instances in which you don’t have to pay a comprehensive deductible. For example, cracks or chips in your windshield may be paid in full by your insurance company depending on the state you live in. Collision coverage pays the costs of any damage to your vehicle caused by a collision with an object when you are at-fault. Any claim you file for damage that is covered by collision will be subject to a collision deductible.1 The higher a deductible, the lower the annual, biannual or monthly insurance premiums may be because the consumer is assuming a portion of the total cost of a claim. Keep in mind that the deductible amount will come out of the policyholder’s pocket in the event of an at-fault car accident, which could overshadow the premium savings. Conversely, a low deductible will increase the premium payments. If the policyholder does not have an at-fault accident resulting in a claim, the individual has paid more for automobile insurance than someone with a higher deductible. A better question might be, when do you not have to pay the auto insurance deductible? In most cases you’re on the hook for it, however if you’re in an accident which another driver is at fault for, this is not the case. You also don’t pay a deductible if the claim you’re filing is covered under liability insurance, which covers injuries and property damage in accidents you are at fault for. This is only the case as long as the costs fall within the range of the coverage you purchased, however. Lastly, a diminishing deductible may ultimately lead to a reduced deductible or even none at all. This kind of deductible rewards drivers for avoiding accidents by reducing their deductible each year they remain accident-free. When you’re choosing a deductible, keep in mind that you may be more or less comfortable with higher out-of-pocket costs vs monthly costs. A high deductible will lower your overall insurance rate, however it will increase your out-of-pocket costs if you file a claim.1 In determining the right deductibles, here are five questions to consider before making the decision: This is a good question as no two insurance companies will have the same deductible-premium ratio, and states differ on their regulatory approach to the subject. Each state may have different rules regarding the way a deductible is incorporated into an insurance policy. By and large, increasing the dollar deductible from $200 to $500 could potentially reduce collision and comprehensive coverage premium costs by 15% to 30%, whereas increasing the deductible to $1,000 may save 40% or more. Let’s say an unknown driver has inadvertently sideswiped a car, costing the owner $800 of damage. The owner has a $1,000 deductible. That $800 now comes out of the owner’s wallet. However, if the owner had a $100 deductible, the out-of-pocket expense would be only $100, providing a savings of $700. That depends. Someone with a low deductible/higher premium ratio can go through a 10-year period without filing an insurance claim. The person will end up having paid more money over that time in total premium than someone else with a higher deductible. Alternatively, a person can end up filing several insurance claims in just a few years. Some questions to ask yourself include: If you are currently experiencing financial difficulties, it might seem that a high deductible is best because it will lower the total premiums. But if you are in an at-fault accident, will there be enough cash on hand to pay the deductible? A best practice is to create an emergency fund to cover the higher deductible before actually taking it. The current thinking is the cleaner the driving record, the greater the consideration one should give to a higher deductible as it will lower premiums. On the other hand, for someone with a less-than-clean driving record, the person should consider taking a lower deductible, despite the additional premiums. You can also consider a program that rewards safe driving, like Nationwide’s Vanishing Deductible, which allows you to earn $100 off of your comprehensive and/or collision deductible for every year of safe driving. Up to $500 total.1 The bottom line is that choosing the right deductible takes time and consideration. A specialized insurance agent can help consumers make the best decision based on their driving record, current finances, credit record and overall financial planning goals. 1 https://www.bankrate.com/insurance/car/car-insurance-deductible/, Accessed December 2021.
What is a car insurance deductible?
How does a car insurance deductible work?
When do you pay the deductible for car insurance?
Five questions to help you choose the right car insurance deductible
How do different deductible levels affect the insurance premium?
What’s the downside of a high deductible?
Is it better financially to have a low deductible and a higher premium?
So how does someone decide which solution is best?
How does a person’s driving record affect the choice of deductible?
FAQs
How does the deductible work for car insurance? ›
After you pay the car deductible amount, your insurer will cover the remaining cost to repair or replace your vehicle. Example:You have a $500 deductible and $3,000 in damage from a covered accident. Your insurer will pay $2,500 to repair your car, and you'll be responsible for the remaining $500.
Is it better to have a $500 deductible or $1000? ›A higher deductible means you'll pay lower premiums, allowing you to save money overall as long as you drive safely and avoid filing claims. Just make sure you can afford to pay $1,000 if necessary.
What does $1000 deductible mean for car insurance? ›For example, if you choose a $1,000 car insurance deductible and have a covered loss that causes $2,000 in damage to your car, you would be responsible to pay the first $1,000. Selecting a higher deductible may lower your car insurance premium.
What does a $500 deductible mean on car insurance? ›A car insurance deductible is what you have to pay out of pocket to cover damages from an accident before the insurance company covers anything. For example, if you have a $500 deductible, you'll have to pay that $500 out of pocket before your insurer will put a dime toward damages.
Do you have to pay deductible if not your fault? ›Often DCPD coverage has a $0 deductible. This means that if you're not at fault and DCPD coverage applies, the damage will be completely covered by your insurer and you won't have to pay a deductible.
What if I can't pay my deductible car insurance? ›Key Points: If you can't pay your car insurance policy's deductible, you may be able to work out a payment plan with your repair shop. Choosing a lower deductible may make repairs more accessible, but you'll pay a higher monthly premium.
Will car insurance go up after a deductible? ›When you're choosing a deductible, keep in mind that you may be more or less comfortable with higher out-of-pocket costs vs monthly costs. A high deductible will lower your overall insurance rate, however it will increase your out-of-pocket costs if you file a claim.
What is a good deductible for comprehensive and collision? ›Comprehensive coverage: Deductibles for comprehensive coverage, which covers damage to the vehicle from a non-driving peril, like extreme weather, theft and vandalism, are typically set at $500 or $1,000. Collision coverage: Drivers can typically choose to pay $500 or $1,000 as their collision deductible.
Why do I have to pay deductible when it's not my fault? ›This is called subrogation. Your insurance company will pursue the at-fault driver's insurance company to recover the money paid for the damages, including your deductible.
Does insurance cover anything before the deductible? ›Many plans pay for certain services, like a checkup or disease management programs, before you've met your deductible. Check your plan details. All Marketplace health plans pay the full cost of certain preventive benefits even before you meet your deductible.
How can a person lower the cost of his car insurance? ›
Increase your deductible
Depending on your insurance provider, paying a higher deductible (the amount you pay out of pocket before your insurance coverage kicks in, in the event of an incident) is typically a quick and easy way you can decrease your auto insurance payments.
The deductible is separate from the monthly premiums. For individuals, a health plan can qualify as high deductible if the deductible is at least $1,350, and the max out-of-pocket cost (the most you'd pay in a year for medical expenses, with insurance covering everything else) is at least $6,750.
Can I lower my car deductible? ›Yes, you can lower your car insurance deductible at any time by contacting your car insurance company and telling them what you would like your new deductible to be. Lowering your deductible will make your out-of-pocket costs cheaper if you need to file a claim, but it will also result in higher premiums.
How does a car deductible work? ›Your car insurance deductible is the amount you are responsible for paying out of pocket when you file a claim with your insurer for a covered loss. Auto deductibles most commonly apply to collision and comprehensive claims, but some other coverage types may have deductibles as well.
How do deductibles work? ›How do deductibles work? A deductible is a predetermined amount that you must pay out-of-pocket before your insurance coverage starts sharing the costs. Until you reach this set amount, you are responsible for paying 100% of the services covered by your insurance plan.
Is it better to have a high or low deductible for car insurance? ›When you're choosing a deductible, keep in mind that you may be more or less comfortable with higher out-of-pocket costs vs monthly costs. A high deductible will lower your overall insurance rate, however it will increase your out-of-pocket costs if you file a claim.
Do you pay deductible before or after a car is fixed? ›You generally pay your deductible to a car repair shop after it fixes your vehicle. Once you file an insurance claim for damage to your car, an insurance adjuster usually reviews your claim and determines how much your insurer will pay for repairs based on your policy limits and deductible.
How do you hit your deductible? ›You meet your medical deductible through costs related to medical services (like a doctor visit). With a prescription deductible, only prescription costs count toward meeting your deductible. A prescription deductible can apply to some or all of your plan's covered medicines.