What Is a Deductible In Car Insurance
You may be wondering what a deductible is in auto insurance. If you are, you’re certainly not alone.
With so many different auto insurance terms and concepts to wrap our heads around, many of us find it very easy to get overwhelmed.
Figuring out what these auto insurance concepts mean for your budget and monthly premiums can also be challenging. But don’t worry, here at CheapInsurance.com, we’ve got you covered.
In this article, we’ll take a look at everything you need to know about car insurance deductibles.
- What is an auto insurance deductible?
- How do auto insurance deductibles work?
- What are the different types of car insurance deductibles?
- When do you need to pay an auto insurance deductible?
- Which factors you should consider when choosing an auto insurance deductible.
After reading this article you’ll have a better understanding of what auto insurance deductibles are, how they work, and how to decide on which deductible is right for you.
Firstly, What Is an Auto Insurance Deductible?
When you submit a claim for an insured loss, a deductible is the amount that you will need to pay out-of-pocket before your car insurance company will pay for the cost to repair your vehicle.
Let’s say you get into a car accident and submit an insurance claim for $6,000, and you have a deductible of $1,000.
Your insurance company will pay out $5,000 and you will be responsible for paying the difference ($1,000) to cover the cost of the repairs.
Deductibles are usually flat amounts between about $500 and $1,000.
However, some insurance companies set deductibles at a percentage of the total claim—rather than a fixed amount.
Auto insurance deductibles are used to share the risk between a driver and an insurance company.
This means that should your car be damaged, you will be partly responsible for some of the costs involved in repairing your car.
Key Point: Deductibles Only Apply to Damage to Your Own Car
It’s important to note that deductibles only apply to the damages to your own vehicle and any injuries you sustain in an accident.
So, injuries or damage that you cause to others—which is covered by auto liability insurance—do not have a deductible.
If you have caused injury to someone else, or damaged their property, the payment of those costs would be covered by your minimum liability insurance, which includes coverage for bodily injury and property damage.
How Do Car Insurance Deductibles Work?
When you apply for car insurance, you will agree on a deductible amount with your insurance provider.
This amount will have a direct impact on your monthly premiums. The higher your deductible, the lower your monthly premiums will be.
This is because if you decide on a higher deductible, you will take on more of the risk and be personally responsible for more of the costs in the event of a claim.
The opposite is also true. If you decide on having a lower deductible, your monthly premiums will be higher because you are taking on less of a risk.
In this instance, your insurance company would be taking on more risk and charge you a higher premium.
Types of Car Insurance Coverage That Have Deductibles
There are several different types of car insurance coverage and each of them comes with their own deductible.
It’s important for you to know what these coverage options are, as well as what their deductibles are likely to be in the event of a claim.
If you are unsure of what your deductibles are, be sure to contact your insurer who will be able to inform you of these figures.
The different types of insurance coverage with deductibles include:
Collision coverage pays for any damage to your vehicle that is the result of a collision with an
object when you are at fault. This does not include collisions with other vehicles.
Collision coverage does not pay for any of the injuries that you or another driver sustain during an accident.
If you file a claim under collision coverage for damage to your vehicle, the collision deductible in your policy will apply.
Collision claims tend to be higher than comprehensive claims, so most insurance agents will recommend a lower comprehensive deductible and a higher collision deductible.
Comprehensive coverage provides you with protection against theft and damage to your
vehicle caused by an incident other than a collision. This includes:
- Natural disasters.
- Riots and vandalism.
- Hitting an animal such as a deer.
- Broken windshield.
Should you submit a claim for damage to your vehicle under comprehensive coverage, a deductible might apply.
However, it’s important to note that although there are many instances in which deductibles
will apply, there are some situations in which a comprehensive deductible won’t be required.
For example, if your windscreen gets shattered by a falling branch, you may have opted for nondeductible glass coverage when you took out your policy.
In this instance, since you have this glass coverage in place, you will not need to pay any out-of-pocket expenses for the replacement of your windscreen.
Uninsured/underinsured motorist property damage
This type of insurance may give you greater peace of mind on the road as it ensures that your car is fully covered in the event that the driver who caused the collision does not have insurance, or lacks adequate insurance.
But there is a difference between an uninsured and underinsured driver.
With underinsured motorist coverage you have to make two claims, one against your insurer and one against the other party’s insurer. This means that you will pay a deductible.
When it comes to an uninsured driver, you will only file one claim with your insurer as the other driver won’t be covered by a policy. This means that you will also need to pay a deductible.
Key Point: Uninsured/underinsured Motorist Bodily Injury Coverage
This type of insurance pays for any medical bills that arise after an accident with an uninsured or underinsured driver. For this coverage, you will generally not need to pay a deductible.
Personal injury protection (PIP)
This coverage helps pay for medical expenses that relate to a car crash and covers you and
all your passengers. It also covers expenses related to lost wages after an accident.
Depending on the state that you live in, you may have a deductible that applies when
submitting a claim.
Those states that require PIP coverage provide you with various options and deductibles, and the one you choose may impact your premium.
Car Insurance Coverage Types That Don’t Require a Deductible
There are some types of car insurance that do not require a deductible, including:
- Liability coverage.
- Roadside assistance.
- Rental car reimbursement.
Let’s take a closer look at each of these types of car insurance.
Liability car insurance provides financial cover to a driver that causes damage to another person or their property.
This means that if you were to cause a collision, your liability insurance will pay out to cover the damages suffered by any third party as a result of your actions.
There is no car insurance deductible for a liability claim.
Liability coverage will not pay out any damage that you as the policyholder suffer if you are the one who caused the collision.
So, it’s important that liability coverage is purchased along with another type of coverage that will protect you (and your car) in the event that you cause a collision.
With roadside assistance insurance, your policy will cover expenses that you may incur in some of the following situations:
- Your car breaks down and needs repairs.
- Your car needs to be towed to a repair location.
- Your car runs out of gas.
- Your car gets a flat tire.
- You lose your keys or get locked out of your vehicle and need a locksmith.
- Your car battery dies and you need a jump start.
Your roadside assistance insurance policy will specify exactly what it covers and what is excluded from the policy.
Your policy may even include extra benefits such as trip interruption expenses, where your insurance provider will cover the costs of accommodation and/or extra travel expenses.
Another potential extra benefit that could be included in your roadside assistance insurance policy is legal defense reimbursement.
If your policy offers this benefit, your insurance provider will cover the costs of a legal representative if you require one as a result of a traffic violation.
You could even get the added benefit of a guaranteed arrest bond, in which case your insurance provider will post bail on your behalf if you are arrested because of a traffic violation.
You do not need to pay a deductible for roadside assistance, because this is one of the complimentary benefits of your insurance policy.
Rental car reimbursement
You may find yourself without transportation while your car is being repaired after a collision. This is where rental car insurance comes in particularly handy.
Rental car reimbursement will cover the cost of a rental car while your car is being fixed.
You will not need to pay a deductible on a rental car from your insurance company, as this is an additional benefit offered through your policy.
When Do I Pay a Car Insurance Deductible?
As mentioned above, collision, comprehensive, uninsured/underinsured motorist, property damage, and personal injury protection (PIP) policies all require a deductible.
You will be responsible for a car insurance deductible each time you claim against any of these policies.
Key Point: You Do Not Actually ‘Pay’ the Deductible to Your Insurance Provider
The deductible set out in your policy is subtracted by your insurance provider from the amount that they cover for your claim.
However, you are liable for paying the difference between the total repair cost of your car and the amount that your insurance provider paid out to the auto repair shop that is doing the repairs to your damaged vehicle.
Similarly, if you suffer injuries as the result of a collision, you are liable for paying the difference between your total medical costs and the amount that your insurance provider pays out for the claim.
What is the average car insurance deductible cost?
As we have already mentioned in this article, auto insurance deductibles vary in terms of cost.
Your insurance provider may charge a car insurance deductible as a set amount each time you make a claim, or they may work out your deductible as a percentage of each claim.
Just to give you a ballpark figure, you may be looking at a car insurance deductible amount of around $500 to $1,000—but these will differ from driver to driver.
Four Factors to Consider When Choosing a Car Insurance Deductible
Some of the key factors that need to be taken into consideration when deciding on a car insurance deductible, include:
- Your vehicle’s value.
- Your driving risk.
- How much money you have saved for emergencies.
- The effect of the size of your deductible on your premium.
Below is a quick overview of how each of these factors should be weighed up.
Your vehicle’s value
The value of your vehicle has a direct impact on the cost of your monthly car insurance premium.
This is because the more expensive your car is, the more your insurance company will need to pay out if the car needs to be replaced.
One of the ways in which you can lower your car insurance premium is by opting for a higher deductible.
On the opposite side of the scale, if your car is older and/or less valuable, then your car insurance premiums should be relatively low.
It’s important to note that choosing a more expensive deductible will not necessarily bring down your premiums that much.
Your insurance agent will be able to advise you of the best route to take—i.e. whether to choose a lower or higher deductible—to keep your car insurance premium low.
Your driving risk
When looking at your driving risk, the following is usually taken into consideration by insurers:
- How far you drive.
- How often you drive.
- Which areas you drive in.
- Your driving record.
- Where your car is parked at night and during the day.
The more time you spend on the road, the higher your driving risk will be.
In addition, if you live in a metropolitan area where there are many drivers on the road, your car insurance premium will be more expensive.
This is in contrast to living in a rural area where the chances of you having an accident are less likely.
If you are a high driving risk it may be best to opt for a lower deductible, as you are more likely to be involved in a collision and be liable for the deductible.
How much money you have saved in an emergency fund
You also need to be realistic about your financial situation and savings when deciding on a car insurance deductible.
Consider whether you will be able to afford a big unforeseen expense like a high deductible in the event of a claim. If not, you may want to consider choosing a lower deductible instead.
The effect of the size of your car insurance deductible on your premium
The deductible you select will have a direct impact on your monthly car insurance policy premium.
As we’ve mentioned earlier in this article, the higher your deductible, the lower your monthly premium will be.
In the event of an accident, you will need to weigh up the benefit of having lower monthly premiums against the risk of a big unforeseen expense, should you choose a higher deductible.
Get a Free Car Insurance Quote and Choose the Best Deductible for You
Now that you have a clearer understanding of what car insurance deductibles are and how they work, you’re in a better position to choose the car insurance provider that’s right for you.
With insurance prices increasing all the time, it’s important to make sure that you know how much you should be spending on car insurance.
We recommend that you use our free quote generator to get an immediate idea of how much you could be spending on your car insurance.
Simply head to the top of this page and enter your zip code. You will immediately get a wide selection of insurance quotes to choose from.
Once you have an idea of the auto insurance premiums that you could be paying, it will be time for you to contact the insurers that are offering you the cheapest rates to get a formal quote.
When you’re ready to ask for a formal quote, it’s important to speak to your insurer and list the opportunities for discounts that you believe are relevant to you.
Getting car insurance should be quick, simple, and stress-free, and you deserve to get the best insurance rates possible.
At CheapInsurance.com, we’ve got you covered!