Auto Insurance Deductibles: How Do They Work?
Your auto insurance deductible is the amount of money you are responsible for paying before the insurance company begins to cover costs.
A deductible is applied to every car insurance claim you make. You can lower your monthly costs by choosing a higher deductible, but you will have higher out-of-pocket expenses if you get into an accident.
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Auto insurance coverage with deductibles
Car insurance policies are broken up into multiple types of coverage. Liability insurance, which includes bodily injury and property damage coverage for the other party involved in an accident, does not typically have any deductible attached.
Generally, deductibles are only applied to two forms of coverage.
- Collision coverage pays for damage done to your vehicle when you are in a crash with another vehicle or any stationary object. This pays for the cost of repairs and/or replacement for your own car. Collision coverage does not cover the damage you caused to other people's property.
- Comprehensive coverage pays for damage to your vehicle from things other than a crash. This includes things like falling tree limbs, hail theft or vandalism, among others. These incidents are sometimes called acts of God.
How does a car insurance deductible work?
If your car is damaged in a crash, your deductible will be applied to any damages before you're paid anything.
For example, imagine you have a $750 deductible. If you are in an accident where your collision coverage would apply and the car you were driving suffered damage requiring $3,500 in repairs, you would be responsible for paying $750. Your insurance company would cover the remaining $2,750.
In some cases where another driver is at fault for the accident, you may wish to file a third-party claim against their property damage coverage. Under these circumstances, your insurance may pursue a process called subrogation to recoup the amounts they have already paid. That may include getting back the amount you paid for your deductible.
When do you pay your car insurance deductible?
When you file a claim with your insurance company, your deductible is subtracted from the insurance payout. For example, suppose you have an claim that's approved for $2,000 to repair your car. If your deductible is $500, your insurance company will send you a check for $1,500. Then, you give your body shop the full $2,000 for the repair.
Some insurance companies pay a body shop directly. In that case, you'll only have to give them $500 to cover the deductible.
Choosing the right car insurance deductible
The first consideration when choosing an insurance deductible amount is how much you would be able to pay in the event of an incident. Car insurance companies sell you coverage for a profit. The more risk protection you buy (meaning the lower the deductible you choose), the more they profit.
Your deductible should be set at an amount where you could pay it without impacting your lifestyle or financial situation.
Auto insurance deductibles are applied on a per-claim basis, so how often you make claims is very important.
If your policy has a $500 deductible and you are involved in four separate claims of less than $500 each, then you would be responsible for 100% of those costs. Your insurance would provide no coverage.
Zero-deductible car insurance
No-deductible car insurance, also called zero-deductible insurance, allows you to pay nothing out of pocket after an accident — in exchange for higher monthly payments.
Not every insurance company offers low and no-deductible car insurance options. If you don’t have a lot of savings and know you may not be able to afford a deductible payment, a zero-deductible policy can help reduce your financial burden after an accident.
For example, if you got into an accident where your car required $3,500 in repairs, your insurance company would pay the entire bill under a $0 deductible policy, with no out-of-pocket cost for you.
If you are considering whether a low-deductible policy is best for you, look at your driving and vehicle history. If your history includes frequent claims, you may want to consider selecting a policy with a lower deductible.
Editorial Note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
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