Your car insurance deductibles are your out-of-pocket costs for certain types of claims. Since the deductibles you choose affect your insurance rate and your potential costs after an accident, it’s important to get them right. Here are the most important things to know about how car insurance deductibles work.
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What is a car insurance deductible?
A car insurance deductible is the amount of money the insurance company subtracts, or deducts, from your payment for certain covered incidents.
Deductibles almost always apply to your policy’s collision and comprehensive coverage, which pay to repair damage to your car. They are usually offered in amounts ranging from $100 to $2,500, and they sometimes apply to other car insurance coverages, too.
If you have a bill for $2,500 in eligible repairs and have a $500 deductible, the insurance company covers $2,000 of your costs. If you have a $1,000 deductible, the insurance company only pays $1,500. The deductible comes out of your pocket.
If your claim is for an amount that is less than your deductible, you don’t receive any money from the insurance company.
When comparing car insurance quotes, it’s best to account for any differences in the deductible amounts shown in each proposal. Increasing your deductible generally reduces your insurance premium, or rate.
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Car insurance premiums vs. deductibles
If you’re new to car insurance, it’s important to understand the difference between car insurance premiums and deductibles.
A deductible is your share of costs for certain types of claims. Your premium is the price you pay to activate your car insurance and keep your policy in force.
When do you pay a deductible for car insurance?
You only pay a deductible for incidents that fall under the car insurance coverages that require one.
- Collision and comprehensive are the most common coverages that require a deductible.
- In many states, the property damage portion of uninsured motorist coverage comes with a deductible, usually between $100 and $1,000.
- In a few states, including Florida and New Jersey, personal injury protection (PIP) is also offered with a deductible.
If you cause an accident, your collision coverage pays for the portion of your own car repairs that exceed your deductible.
On the other hand, if your car is damaged in an accident caused by someone else, the at-fault driver’s liability coverage, which does not require a deductible, pays for your repairs.
If it takes a while to determine fault, you may initially have to tap into your collision coverage and pay your deductible to get your car fixed. If your insurance company later recovers your repair costs from the at-fault driver’s insurance, it may refund your deductible payment.
Here are other common scenarios that may require you to pay a car insurance deductible.
Car theft, vandalism, acts of nature and glass breakage
Comprehensive includes coverage for car theft and vandalism to your vehicle, glass breakage, fire, flood, falling objects and other acts of nature.
If your car is stolen and can’t be recovered, your insurance company sends you a check for your car’s market value, after it subtracts your deductible from the payment.
If your car is damaged by a fire, flood, falling object or another covered cause, your insurance company pays the portion of your repair costs that exceeds your deductible, up to your vehicle’s market value.
Glass breakage typically also falls under comprehensive coverage. Some companies offer a relatively inexpensive endorsement that reduces or eliminates your deductible for glass repair or replacement. Since glass breakage is common, these optional coverages often come in handy.
Uninsured or hit-and-run drivers
In many states, uninsured motorist insurance is available as separate coverages for bodily injuries and property damage. The latter covers damage that an uninsured motorist or hit-and-run driver causes to your vehicle.
Collision coverage also applies to damage caused by uninsured and hit-and-run drivers. However, uninsured motorist coverage typically comes with a lower deductible, which reduces your potential out-of-pocket expenses.
Although rare, insurance companies in a few states, including Florida and New Jersey, offer PIP deductibles.
PIP covers injuries you or your passengers may suffer in a car accident, regardless of fault. As is the case with other deductibles, your PIP deductible is subtracted from your insurance company’s payment for eligible expenses.
Why do high car insurance deductibles lower your premiums?
High deductibles reduce the amounts that insurance companies have to pay out in claims. Insurance companies pass these savings along to customers in the form of lower rates for those who choose high deductibles.
Our research shows that raising your collision and comprehensive deductibles from $500 to $1,000 reduces the average price of car insurance by 9%. Increasing your deductibles from $500 to $2,000 reduces the average price of insurance by 16%.
|Full-coverage rates for a 35-year-old male with a clean driving record. Your rates may vary.
Which car insurance deductibles should I choose?
It’s generally best to choose deductibles that match the highest amounts you can reasonably afford in the event of an accident or other covered incident.
If you have ample savings, setting your deductibles at $1,500 or more is a relatively easy way to reduce your car insurance costs. However, if the thought of depleting your savings to cover unexpected repairs makes you uncomfortable, a lower deductible may be a better choice for you.
If you want to avoid deductibles altogether, you can consider a zero-deductible car insurance policy, although these are rare and expensive.
Regardless of the deductible you choose, it’s best to avoid relatively inexpensive claims. Here’s why:
- Insurance companies tend to raise your rates after you file certain types of claims, particularly collision claims for at-fault accidents, including minor fender benders.
- If you file too many claims within a two- or three-year period, your insurance company may non-renew your policy, even if all your claims are for minor amounts.
If your claim is for an amount that is just a few hundred dollars more than your deductible, you may be better off covering it yourself.
Rates are based on an analysis of car insurance quotes obtained from Quadrant Information Services for sample drivers in California, Illinois and Ohio.
Our sample driver is a 35-year-old male who drives a 2012 Honda Accord LX an average of 13,500 miles a year and has a clean driving record.
Full-coverage policies include the following coverages:
- Bodily injury liability: $100,000 per person/$300,000 per accident
- Property damage liability: $100,000
- Uninsured motorist coverage: Illinois only
- Collision: Deductibles of $500, $1,000 and $2,000
- Comprehensive: Deductibles of $500, $1,000 and $2,000
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