What Is a Car Insurance Deductible?

A car insurance deductible is the amount of money you must pay out of pocket for a covered loss before your insurance covers the remaining costs. In other words, it’s the dollar amount “deducted” from the total cost of a covered loss. 

The choice is up to you whether you want a high deductible or a low deductible. If you choose a lower deductible, you will typically pay more for coverage than if you choose a higher deductible. When making your decision, weigh the deductible amount that works best for you, your budget, and the way you drive.

How Do Car Insurance Deductibles Work?

With health insurance, you usually have a deductible that you pay annually. Once you’ve met it, your insurance covers the rest of your costs for the year. With auto insurance, you’re responsible to pay your deductible every time you file a claim.

Let’s say you’re out driving and get into an accident, running up a bill for $4,000 worth of covered damage to your car. If you have a $500 deductible, your insurer will cover $3,500 of the repair costs and you’ll be responsible for the $500 balance. 

There are two kinds of car insurance that carry deductibles: comprehensive coverage and collision coverage. Comprehensive coverage is an optional layer of protection that helps cover costs for damage caused by events such as theft, fire, weather-related incidents, accidents with animals, or other acts of nature. Collision coverage, on the other hand, can help pay to repair or replace your car if you’re in a collision with another vehicle (regardless of who is at fault) or if you hit a stationary object. While neither of these is legally required in any state, if you are leasing or financing your vehicle, your lender might require one or both. You can choose different deductible amounts for each type of coverage. 

Understanding High vs. Low Car Insurance Deductibles

When it comes to the amount of your deductible, there are quite a few things to consider. Typically, you can choose the amount of deductible you want to pay, usually between $100 and $2,000, with the most common amount being around $500. Ultimately, however, the amount you pay is up to you.

With a higher deductible, you’ll usually have a lower cost for insurance coverage compared to coverage with a lower deductible. A higher deductible also means you’ll have higher out-of-pocket expenses if you’re in an accident. 

By contrast, with a lower deductible, your insurance rate will be higher, but you’re on the hook for less out-of-pocket costs in the event of a collision or other damage. 

Regardless, make sure you set a deductible amount you can comfortably pay if you need to make a claim. 

When Do You Pay a Car Insurance Deductible?

You pay your car insurance deductible any time you file a claim. If your claim is approved by your insurance provider, your deductible will be applied – or “deducted” – from the total amount your insurer will pay for repairs. 

Looking at our earlier example, if you’re in an accident and have a covered claim for $4,000 of damage and your deductible is $500, your insurer will issue a payout for $3,500. You will be responsible for paying the remaining $500 to fix your car.

When Aren't You Required to Pay a Car Insurance Deductible?

There are, of course, exceptions and times when you won’t have to pay your car insurance deductible. Typically, you won’t have to pay your deductible if:

• Another driver is at fault: If you’re in an accident and it’s the fault of another driver, you can file a claim with that driver’s insurance company to pay for the damage to your car. In this case, you won't pay a deductible. You'll only pay your deductible when you file a claim with your insurance provider.
  
• You hit another car, but don’t damage your own: If you’re at fault in an accident that causes damage to someone else’s vehicle but not your own, your liability coverage will pay for their damage, so you won’t have to pay your deductible.
  
• You chose a “disappearing deductible”: Some insurance providers offer what’s called a “disappearing deductible,” sometimes called a “diminishing deductible.” This is a program that lowers your deductible by a certain amount for every policy period where you have no violations and no claims. With this type of program, it’s possible to get to a point where you have a $0 deductible. Once you make a claim, though, your deductible amount will reset to its original amount, and you’ll start all over.
  
• Liability claims against you: If another driver files a claim against your liability insurance coverage, you won’t have to pay a deductible because there are no deductibles associated with liability coverage. Be forewarned, however: you might not be fully covered if the damage exceeds your liability policy limits.

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Factors to Help You Choose a Car Insurance Deductible That’s Right for You

When it comes to deciding how much of a deductible to carry on your comprehensive or collision coverage policies, there’s a lot to consider, including:

• How will the amount of my deductible affect my insurance premiums? Generally speaking, increasing your deductible amount from $250 to $500 can reduce your car insurance premiums by as much as 15%–30%. If you increase your deductible to $1,000, those savings could be as high as 40% or more.
  
• Paying a lower rate sounds good. Why would I choose a lower deductible? Let’s say someone hits your car with a grocery cart while you’re in the store shopping. They don’t leave a note and you’re left holding the bag for repairing your car. You have a $1,000 deductible, but the damage is only $800. That means you have to pay out of pocket for the entire $800 repair bill. But if your deductible was only $200, you’d save $600 in out-of-pocket costs.
  
• Is it better to have a low deductible and a higher premium or vice-versa? That’s difficult to say, and the answer depends mostly on what you are comfortable with. Say you have a low deductible but pay higher premiums. You could go for years without making a claim and will ultimately pay more money over that time. On the other hand, you could end up filing multiple claims over the same period, so having a lower deductible could pay off.
  
• Will my driving record affect my choice of deductible? If your driving record is clean, meaning you haven’t had violations or filed many claims, you’re probably better off choosing a higher deductible, since that will lower your premiums. If you have a less-than-clean driving record, however, you might want to consider a lower deductible, since you might be more likely to make a claim. Additionally, many insurers offer disappearing deductible programs that reward you with lowered deductible amounts for every year of claim-free driving.
  
• I’m financing my vehicle. Will that affect my deductible amount? Financing your vehicle can impact your deductible. If you’re financing or leasing your vehicle, your lender may require you to carry a specific deductible amount, depending on the terms of your loan or contract. If you opt to carry a deductible amount that differs from your lender’s requirement, they could add collateral protection insurance to your monthly payment. This amount is typically non-negotiable and will increase your month-to-month payments.
  

To Learn More about Your Car Insurance Deductible, Get Connected with a Trusted Choice Independent Insurance Agent

Car insurance deductibles and determining how much you should pay can be complicated. While you can find general answers online, the best way to get personalized answers about the best car insurance deductible arrangement for your unique situation is to speak to an independent insurance agent. They can give you personalized service and help you get exactly what you need.