What Is A Car Insurance Deductible?

Put simply, an insurance deductible is the amount of money you pay out of pocket when you file a claim.

If your car is damaged—for instance, if it’s been pummelled by hail and needs to be repaired— you typically file a claim with your insurer to cover the loss if you have comprehensive coverage. But before the auto insurance company pays to get the hail damage fixed, your deductible is subtracted from your claim cheque. Alternatively, if you take your car to a preferred repair shop, one offered as an option by your insurance company, the insurer would pay the mechanic directly for the repairs and you would be responsible for the balance, equalling the deductible.

Typically, the deductible for car insurance is a flat amount, such as $500 or $1,000.

Here’s a quick overview:

• Loss or damage coverage, including comprehensive, collision or upset, specified perils and all perils carry a deductible.
• Uninsured automobile coverage may carry a deductible. In Ontario, it’s $300.
• Most policies with Direct Compensation-Property Damage (DCPD) coverage don’t have a deductible, but you can add one (typically $300 or $500) to lower your premium.
• Third-party liability and accident benefits coverage do not carry deductibles.
• Your insurance company will offer you several options for your deductible.
• A high deductible amount usually means a lower rate.
• You usually pay a deductible every time you file a claim that carries a deductible.
• Your deductible is taken from your claim pay out—you don’t actually pay the amount to your insurance company.

Let’s say it’ll cost $5,000 for a repair shop to fix damage caused by hail. If you have a $500 deductible for your car insurance policy, the insurer will subtract $500 from the $5,000 payout to cover the hail claim. This means you’ll get $4,500 to cover the repair job, and you’ll be responsible for the remaining $500.

You choose your deductible amount when you buy the policy and typically must cover your deductible every time you file a claim. (You can change your deductible, but the change won’t apply to existing claims.)

The most common car insurance deductible is $500. However, deductible amounts can vary from $100 to $1,000 or higher, depending on your insurance company and where you live. How much you can save by raising your deductible varies by company.

Comprehensive and collision or upset coverage are the most common types of car insurance with deductibles, and each comes with its own deductible. Usually the deductible is the same for both coverages, but you can have different amounts.

Comprehensive coverage pays for damage done to your car by incidents not related to a collision, such as theft, vandalism, weather or run-ins with an animal. Collision or upset coverage pays for damage done to your car when you hit another car or an object (like a fence or utility pole).

The maximum payout for both collision and comprehensive insurance is the value of the vehicle right before the accident or damage if it’s totaled, minus the deductible amount.

Deductibles also might be attached to uninsured motorist coverage in your policy.

Third-party liability insurance, which covers injuries or damage that you cause to others, and accident benefits coverage do not have a deductible.

Keep in mind that a lower deductible for car insurance normally will result in a higher premium, because you’re assuming less of the cost for a claim. And a higher deductible typically will lead to a lower premium, because you’re assuming more of the cost if you make a claim.

If you have a car loan, your lender may require a certain deductible amount, so be sure to check before selecting an amount.

Otherwise, there isn’t a “right” or “wrong” deductible amount, it really comes down to what you’re comfortable doing. Generally, if you would rather pay more for car repairs than for insurance, a high deductible might be worthwhile. Consider the following:

• A high deductible might make sense if it doesn’t make you feel nervous that you will have to pay more to fix your car if you file a claim.
• You might opt for a high deductible if you have the money already saved to pay the difference between your repair bill and claim payout.
• If you don’t live in an area prone to hail, flooding or animal collisions or have a long commute or drive in an urban area, you may be less likely to file a claim, which means a high deductible might not be a bad choice.

Some insurers, such as Allstate, TD Insurance and Aviva, will reward you for being a safe driver through an optional feature called a “diminishing deductible.” It’s also sometimes called a “vanishing,” “decreasing” or “disappearing” deductible.

Over time, if you steer clear of car accidents and maintain a clean driving record, your insurer will lower your deductible.

For instance, TD Insurance offers a TD Insurance Decreasing Deductible that applies to collision or all perils coverage with deductibles of $500 or less. For each claims-free year, you earn a 10% decrease on that original deductible until it reaches zero. There is no additional cost with this feature.

With Allstate, you get $100 off your deductible for every year you go without making a claim with their Disappearing Deductible enhancement. It’s unclear whether there is a cost for this feature.

Aviva offers an endorsement where you can reduce your deductible by 20% for each year you go without making a claim. After five claims-free years, your deductible is reduced to zero. There may be an additional cost for this option.

In the event of a claim, your deductible will revert back to its original amount.