How Does A Car Insurance Deductible Work?
Your deductible is how much you must pay out of pocket before your auto insurance pays for damages, but not all claims require a deductible.
When you file a claim against your auto insurance policy, you’ll often have to pay a set amount up-front before your insurance kicks in, called a deductible. For example, if you have a $500 deductible and file a claim for $2,000, you pay the first $500 and your insurer pays the remaining $1,500.
How deductibles work
Insurance pays out on claims up to the limits in your policy, but some coverages require your deductible to be met before insurance covers any costs. For example, imagine you are in an accident that results in $5,000 in repairs, and you have a $1,000 deductible. You’ll pay $1,000 of those costs and your insurer will pay the remaining $4,000.
Deductibles are attached to collision and comprehensive coverages, and sometimes uninsured motorist coverage. Notably, there is no deductible for liability coverage. Liability car insurance covers property damage and bodily injury that you cause to other people.
Your deductible amount is determined by the terms of your car insurance policy. In general, the higher your deductible, the lower your monthly premium is. There are policies without deductibles, but they are rare and cost a lot more than policies that have deductibles.
When do you pay a deductible for car insurance?
You pay your car insurance deductible if you file a claim with your insurance company under a coverage that includes a deductible. This most often applies to damages to your own car, but it can sometimes apply to personal injury protection or underinsured motorist coverage.
After filing a claim, your insurance provider will write you a check for how much the repairs would cost, minus your deductible. For example, if your car has $2,000 in damages and you have a $500 deductible, your insurer will pay you $1,500.
|Coverage||Do you have to pay an auto insurance deductible?|
|Bodily injury liability||No|
|Property damage liability||No|
|Uninsured and underinsured motorist||Sometimes|
|Medical payments (MedPay)||No|
|Personal injury protection (PIP)||Sometimes|
Do you have to pay a deductible if you are not at fault for an accident?
After an accident, who’s at fault may not be clear. Normally, you won’t pay your deductible if another driver causes the accident. But determining fault and getting reimbursed can take a lot of time, and your car will sit unrepaired during that time.
To speed things up, you can file a claim with your car insurance company even if it’s not your fault. If you’re deemed not at fault after you already paid your deductible and got your car repaired, you can try to get your deductible back. There are a few avenues to pursue:
- Your insurer could decide to pursue action against the other driver’s insurance policy. This process is called subrogation. If your insurance company can recover funds from the other driver’s insurance company, they must reimburse your deductible payment.
- If your car insurance company doesn't recover money from the other driver’s insurer, you can still get your money back. You can take the other driver to small claims court to get the amount you paid for your deductible.
Collision insurance protects your vehicle from damages that result from your car colliding with or into something. It applies if you hit a lamp post, another car or a tree, for example. If you have this type of coverage, your deductible amount is subtracted from the claim payout.
The definition of comprehensive insurance is coverage that includes damages other than collision. It protects your car from falling objects, fires, theft, earthquakes and more. You'll pay your comprehensive deductible if you have this type of coverage and file a claim for damages resulting from anything other than a collision.
What deductible should I choose?
The amount you choose for your deductible influences your overall monthly premium and your out-of-pocket costs after an accident. That’s why it’s important to choose the right deductible for your situation. These are some questions you should ask yourself when choosing your deductible amount:
How much cash do I have available? If you always have enough savings to cover your deductible, you should choose a higher deductible that will save you money on your premium. Your deductible should never be higher than you’re able to pay at any time.
What's my car worth? If your car is low in value, you should not carry a high deductible because the value of the vehicle could be close to how much you’ll have to pay out of pocket if you file a claim.
The lower your deductible is, the more expensive your monthly premium will be. Similarly, raising your deductible lowers your monthly rate. However, our research suggests that beyond a $750 deductible, any further deductible increase has a minimum effect on your annual rate.
Therefore, we recommend most people to have a deductible between $500 and $1,000 for their comprehensive and collision deductibles.
A $500 deductible means you’ll pay $500 out of pocket after an accident, and your insurer will pay for the rest of the damages up to your policy limits. This deductible amount is a common choice for drivers.
If your car repairs are less than your $500 deductible, you won’t be able to file a claim. You should cover any repairs close to your deductible amount, as they're considered small repairs. It’s unwise to file a claim for a minor accident.
For example, if your final repair bill from the mechanic is $600, this exceeds your $500 deductible. But it’s not in your best interest to file a claim. You would pay the insurance company $500 of a $600 repair bill; they would in turn send you a check for $600. They just gave your $500 back and you only got $100 from the insurance company.
And there’s a chance your insurance company would raise your rates after a claim. So even if the repair bill is $750, your rate increase will likely cost more than the $250 you save from filing a claim rather than paying for repairs yourself.
If you’re able to fork over $1,000 after an accident, choosing this deductible amount can be a good option. Many drivers choose this amount if they’re able to afford it.
A thousand-dollar deductible can save you $372 a year on your premium compared to a $500 deductible. This makes it a great way to save on your insurance bill, if you can afford it.
Does my auto lease require a certain deductible amount?
You may have a required deductible amount if you have a loan or are leasing your vehicle. Some lease agreements require low deductibles of $500 or less to ensure that you’re able to pay if the car is damaged.
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