What Is a Deductible on Car Insurance?

A deductible in vehicle insurance refers to the amount you pay when submitting a claim for specific types of coverage. After you've paid the deductible, the insurer will assist cover the remaining expenses of auto repairs and medical bills up to the limitations of your policy.

Learn how vehicle deductibles work and how to establish your own.

KEY TAKEAWAYS

• Deductibles are required for collision and comprehensive coverage under your vehicle insurance policy.
• When you make certain types of vehicle insurance claims with your carrier, you must pay your deductible.
• Liability coverage does not need a deductible.
• You may frequently pick your deductible level, and greater deductibles mean cheaper rates.

How Does Car Insurance Deductible Work?

When you sign up for car insurance, your insurer will ask you to choose a deductible amount for many types of coverage, such as collision. The normal deductible is $500, although it can range from $0 to $2,000. If you make a claim with a deductible, you must pay the deductible out of pocket before your insurer will pay for any damage.

If the culpability of the collision is disputed, your insurance may seek reimbursement from the motorist who caused the damage to your automobile, including any deductible you paid. If you are partially at blame in an accident, you may only be able to collect a fraction of the damages. If your insurer successfully recovers all claim expenses and you are not at fault, the deductible you paid will be reimbursed.

Health insurance deductibles force you to spend a set amount every year before your insurer will reimburse any expenses. Car insurance deductibles function differently since they are event-based. So, if you make many covered claims during the year, you'll have to pay a deductible each time.

Example of Car Insurance Deductible

Assume you have a $500 deductible on collision insurance and rear-end another car at a stoplight. After exchanging information with the other motorist, you contact your insurance provider to report the accident and make a claim.

Shortly later, the insurance approves the claim and requests that you pay the deductible. You pay $500, and the repairs cost $3,500. Your insurer would then pay the remaining $3,000.
However, if you do not have collision coverage, the incident will not be covered. Your insurer would insist that you pay the whole $3,500 cost of repairs out of pocket. If you were not at fault in the collision, the other driver's insurance would cover your repairs, and you would not have to pay the deductible.

Types of Car Insurance Deductibles

Car insurance deductibles are normally charged when you submit a claim for one of the following policy categories.

Collision Coverage

Collision coverage pays for vehicle damages if you collide with another automobile or a fixed object, such as a railing or pole. According to the California Department of Insurance, standard collision policy deductibles range between $200 and $1,000.

Comprehensive coverage.

Comprehensive coverage pays for repairs if your car is damaged by a covered risk, such as hail, theft, or burglary. The National Association of Insurance Commissioners reports that comprehensive coverage deductibles range from $50 to $1,000.

Personal Injury Protection (PIP).

Personal injury insurance (PIP) covers lost earnings and medical expenses for you and your passengers, regardless of who is at fault in an accident. This coverage might be required in no-fault states. Unlike other forms of coverage, PIP may require you to pay some medical bill co-pays after you have met the deductible.

Uninsured motorist coverage

Uninsured motorist coverage pays for car repairs if an uninsured driver damages you. This policy may have a cheaper deductible than collision insurance. In several areas, the legislation restricts the deductible that can be charged, ranging from $150 to $500.

Assume you have totaled a vehicle but still owe money on your auto loan or lease. The insurer's payout does not cover the whole amount owed to the lender or automobile leasing firm. Guaranteed auto protection (GAP or gap) insurance helps cover the difference. Depending on your GAP insurance coverage, it may or may not cover needed deductibles.

Situations With No Deductible

• Here are several scenarios in which you're unlikely to pay your vehicle insurance deductible:
• In the event of an automobile accident caused by another driver: Their liability coverage will pay for your damages up to the limits of their policy.
• If you are discovered to be at blame for damages in an accident: Your liability coverage will pay their damages up to the limits of your policy.
• Uninsured or underinsured drivers are at fault: Some states or insurers may waive the deductible for certain physical injuries covered by your uninsured/underinsured motorist (UI/UIM) policy.
• Glass Repair or Replacement: Some insurers may waive the deductible if you repair rather than replace glass. Some jurisdictions require insurers to give zero-deductible window glass coverage if you have comprehensive coverage.
• You have a zero-deductible insurance, deductible waiver, or a "diminishing deductible"
• endorsement on your policy: Some coverages and insurers allow you to have a $0 deductible.

How to Select the Right Deductible Amount

The appropriate deductible amount will be determined by your budget, probability of filing claims, and risk tolerance.

Budget

A greater deductible might help decrease your insurance cost. However, you should ensure that you can pay the deductible in the event of an accident or theft of your vehicle. Remember that your overall yearly cost is determined by your premium and any out-of-pocket deductibles you pay.

In some areas, if you have a history of claims, your insurer may impose a larger deductible.

Risk

Consider the possibility of submitting a claim for everybody covered under your insurance. Examine recent years for any claims submitted. Consider criteria such as covered drivers' driving experience, the auto theft rate in the area where you park vehicles, and weather-related damage.

You may choose a higher premium if your claim-filing risk is low—for example, if you haven't filed a claim in years, aren't at danger of theft or vandalism, and don't usually drive in heavy traffic. If you do not submit a claim, you will save money on your auto insurance since the premium is cheaper. Those who are more prone to submit claims, on the other hand, will most likely profit from the reduced deductible amount if they do.

Risk Tolerance

The selection will also be based on the degree of danger you are willing to accept. If you'd rather be cautious than sorry, you could select a lower deductible but a higher premium. If you're content with hoping nothing bad occurs, a larger deductible may be ideal for you.

Tip: If your automobile is worth less than $1,000, you could forgo collision and comprehensive auto coverage, because any covered claim will not be much higher than the deductible and premium.

When do you pay your car insurance deductible?

When your automobile insurance claim is granted, you are responsible for paying the deductible. The payment is necessary before your insurer will reimburse any associated damage charges.

What is an appropriate deductible for car insurance?

In several areas, insurance companies must first give a $500 deductible for collision and/or comprehensive coverage, unless you request a lower amount. However, many insurers provide reduced deductible levels in return for higher premiums or alternative deductibles for optional coverages. According to the Texas Department of Insurance, raising your deductible from $500 to $1,000 might reduce your premium payments by up to 20%.

Do You Have to Pay a Deductible If You're Not At Fault?

If you are not at fault in an accident, you will usually not be required to pay a deductible. The other person's property damage liability insurance should cover your losses. However, if the other motorist is uninsured or underinsured, you will most likely make a claim with your insurer, which may impose a deductible. If the accident is disputed or you are partially to blame, you may be required to pay the deductible in order to have your vehicle repaired.

What Happens If You Cannot Pay Your Deductible?

If you cannot pay your deductible, your insurer will not cover the expenses associated with your claim. As a result, you will be entirely responsible for any repairs or medical treatments you require. In this case, it may be more cost effective to finance the deductible with a personal loan or credit card.

What if your car insurance deductible is more than your repair costs?

Filing a claim is pointless if your automobile insurance deductible exceeds the cost of the repairs. Furthermore, keep in mind that the majority of claims might result in increased vehicle insurance prices when it comes time to renew coverage. You would be better off paying the charges yourself and avoiding insurance altogether.

The Bottom Line

Deductibles are a crucial component of every vehicle insurance coverage. It is critical to choose your deductible level carefully, since it can have a big impact on your overall expenses for the year. Shop around and compare rates, as deductibles and premiums differ from one insurance to another.