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 insurance terms and concepts to wrap our heads around, many of us find it very easy to get overwhelmed.
Figuring out what these insurance concepts mean for your budget and monthly premiums can also be challenging.
In this article, Cheapinsurance.com will share information about car insurance deductibles.
This includes:
- What is an insurance deductible.
- Different types of car insurance deductibles in a policy.
- When to pay your share of a deductible.
- Factors you should consider when setting a deductible.
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.
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 a higher car insurance rate.
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
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
Comprehensive coverage provides you with protection against theft and damage to your vehicle caused by an incident other than a collision. This includes:
- Theft.
- Natural disasters.
- Riots and vandalism.
- Fire.
- 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 windshield 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)
PIP 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 coverage
Liability car insurance provides financial coverage 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.
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 the 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. |
Factors to Consider When Choosing a Auto Insurance Deductible
Some of the key factors that need to be taken into consideration when deciding on auto insurance deductibles, include:
- Vehicle’s value.
- Driving risk.
Below is a quick overview of how each of these factors should be taken into account.
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 insurance rate.
Driving risk
When looking at your driving risk, the following is usually taken into consideration by automobile insurers:
- Amount of miles driven.
- How often you drive.
- Areas driven.
- Driving record.
- Where the 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.
