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Confused about how a car insurance deductible works?
When shopping for car insurance, you’ll likely come across the word “deductible” and might wonder how it affects you and your insurance costs — and when you’ll actually need to use it.
A car insurance deductible is the amount of money you’re responsible for paying after you file an approved insurance claim. Your insurance company covers the rest, up to your coverage limit.
Let’s take a look at how a car insurance deductible works, when you need to pay it (and when you don’t), and factors to consider when deciding whether to choose a lower or higher deductible.
How does a car insurance deductible work?
A deductible is the amount you’ll pay out of pocket for car repairs or replacement before your auto insurance company pays the balance, up to your policy coverage limit. Both comprehensive coverage and collision coverage have deductibles, while some other types of coverage — such as liability insurance — typically just have coverage limits. Common auto insurance deductible amounts are $250, $500 and $1,000.
Let’s say you skidded into a guardrail, filed an insurance claim that was approved and took your car to the body shop for repairs. Repairs totaled $5,000, and you have a $500 deductible. The insurance company would give the body shop $4,500, and you’d have to pay the other $500 to the shop when the repairs were completed. Or you might pay for the cost of repairs upfront, and your insurance company would reimburse you, minus your deductible.
But what if your car is totaled? If that happens and your claim is approved, your insurance company will reimburse you for the actual cash value of your car — up to your coverage limit — minus your deductible. For example, if your insurance company values your car at $8,000 and you have a $500 deductible, your insurer would pay you $7,500.
Keep in mind that you’ll have to pay your deductible for each claim you file. A car insurance deductible isn’t a single amount that you pay each year before services are covered, like you’ll typically find with health insurance deductibles.
Do I have to pay the deductible if I’m not at fault?
In short, it depends on where you live.
In most states, if you’re in an accident that’s the other driver’s fault, their liability insurance is usually responsible for covering your repairs, up to the coverage limit.
But if you live in a no-fault state, it doesn’t matter who caused the accident. If your car is damaged and you have collision insurance, you’d need to file a claim with your insurance company and pay your deductible before your coverage kicked in.
You’ll likely also need to pay a deductible in these scenarios.
- You’re in a single-car accident, such as sliding on wet pavement into a tree. Your collision insurance would likely help pay for repairs, up to your coverage limit, after you pay your deductible.
- Your car is stolen or damaged by vandalism, a natural disaster, a falling object or an animal. Your comprehensive insurance will typically help pay for the cost of repairs up to your coverage limit, minus your deductible.
- Your windshield cracks or shatters. Comprehensive coverage generally covers glass breakage, up to your coverage limit, minus your deductible.
Should I choose a high or low deductible?
The best auto insurance deductible for you depends on your finances and needs. Remember that a high deductible usually means a lower insurance premium and vice versa. But a higher deductible isn’t always the right answer.
When choosing your insurance deductible amount, ask yourself two questions.
- How much could I cover out of pocket if my car needed some repairs or even replacement? Could you realistically shell out $1,000 if your car were damaged? If you don’t have money set aside in an emergency fund, a lower deductible might make more sense for you.
- How much can I afford to pay each month for car insurance? A range of factors could drive up the cost of your auto insurance. You might find that you can only afford the premium if you choose a higher deductible. If this is the case, be sure to set aside some money in case you need to file a claim and pay your deductible.
Beyond your deductible, factors like your age, where you live, the age and value of your vehicle, and your driving record can all cause your insurance rates to go up or down.
Be sure to shop around and gather quotes from several car insurance companies. As you compare them, make sure that the deductibles and liability limits are the same across quotes so that you’re doing a fair, apples-to-apples comparison.