Car Insurance Deductible: What Is It? How Does It Work?

What is a Car Insurance Deductible?

A car insurance deductible is the amount of money deducted when you file a claim under a policy’s comprehensive, collision, personal injury protection or uninsured/underinsured motorist property damage coverage.

If your car is damaged—it’s been pummeled by hail and needs to be repaired, for instance — 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 check. Typically, the deductible for car insurance is a flat amount, such as $500 or $1,000.

Here’s a quick overview that we’ll explain in detail:

• Comprehensive, collision, personal injury protection and uninsured/underinsured motorist property damage coverages carry deductibles.
• You choose the deductible amount.
• Some states specify the deductible amount that must be offered for personal injury protection.
• A high deductible amount usually means a lower rate.
• You usually pay a deductible every time you file a claim.
• Your deductible is taken from your claim pay out—you don’t actually pay the amount to your insurance company.

How Do Car Insurance Deductibles Work?

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.

What Types of Car Insurance Deductibles Are There?

Comprehensive and collision 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 deer. Collision 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 the personal injury protection coverage or uninsured/underinsured motorist property damage coverage in your policy.

In some states that require personal injury protection, laws specify deductible amounts that must be offered.

Auto liability insurance, which covers injuries or damage that you cause to others, does not have a deductible.

Should I Choose a Low or High Deductible Amount?

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.

Diminishing Deductibles

Some insurers will reward you for being a safe driver through an optional feature called a “diminishing deductible.” It’s also sometimes called a “vanishing” 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, an insurer might offer an annual $100 deductible credit for each year you remain a safe driver. In this scenario, if you go three years with a spotless driving record, your $500 deductible could go down by $300. This means your new deductible would be $200.

When It Doesn’t Make Sense to File a Claim

Also worth noting is that if your deductible exceeds the amount of repairs needed for your car, it doesn’t make financial sense to file a claim. Let’s say the repair bill for your car is $800 but your collision deductible is $1,000. In this case, you’d be stuck with the entire repair bill because the repair costs are lower than the deductible amount. There’s no reason to file a claim in a case like this.

Also, even if your repair bill is higher than your deductible, you may want to consider whether a relatively low payout amount is worth a potential insurance rate hike at renewal time. For instance, if you have a $1,000 deductible, and you file a $1,600 claim, you would get $600 to fix your vehicle. But if it’s a collision claim, your insurance company might increase your rates. That means it could cost more for coverage over the long-term, even though you got $600 to fix your car.