Car insurance provides financial security in case of an accident or damage to your vehicle. While most people understand the basics of coverage types, deductibles are often misunderstood. But knowing how car insurance deductibles work can make a big difference in your policy costs and out-of-pocket expenses. Let’s break down the intricacies of car insurance deductibles and help you pick the right one for you and your car!
What is a car insurance deductible?
A car insurance deductible is the amount you’re responsible for paying out of pocket before your insurance coverage pays the rest for a covered claim. This set dollar amount is predetermined in your policy—common deductible amounts range from $100 to $2,000.
Types of Deductibles
- Low Deductible: Usually $100–$500. You’ll pay less out of pocket after an accident, but your monthly premium will be higher.
- High Deductible: Usually $1,000–$2,000. You’ll pay more up front if you have a claim, but your insurance premium will be lower.
Example: If you have a $500 deductible and your car sustains $2,000 in covered damages, you’ll pay $500 and your insurer will cover the remaining $1,500.
Which types of car insurance include deductibles?
Not all parts of your auto insurance policy come with deductibles. The two most common coverage types that include them are:
Collision Coverage
Collision insurance pays for damage to your vehicle after hitting another car or object, or if your car flips over—regardless of who’s at fault. A deductible always applies to this type of coverage.
Comprehensive Coverage
Comprehensive insurance covers non-collision-related damage like:
- Theft
- Vandalism
- Fire
- Floods
- Falling objects
- Natural disasters
Like collision, comprehensive coverage also includes a deductible.
Some states and policies may also apply deductibles to uninsured motorist and property damage coverage, but this varies and is less common.
How Car Insurance Deductibles Work
No matter the type of coverage, all auto deductibles work the same way. When an insured event occurs, the claims process begins. The insured individual must submit a claim to their insurer, including information on what happened, documentation, and anything else requested by the insurer. Likely, the insurer will request that you get the damage evaluated by an auto repair professional.
After evaluation, you must pay your deductible before the insurer pays for the repair. This will come as a payout equal to the repair cost minus your deductible.
Unlike health insurance, which often has an annual deductible, you are responsible for your deductible every time you file an auto claim. If the repair cost is lower than your deductible, your insurer will not cover any part of the repair. It may be best not to file a claim in these cases, as this may raise your insurance rates.
When You Don’t Have to Pay a Deductible
There are a few scenarios where you may not need to pay your deductible:
- You’re not at fault in an accident: Your insurer may recover the deductible from the at-fault driver’s insurance through a process called subrogation.
- Liability claims: If you’re at fault but only the other vehicle is damaged, your liability coverage pays, and you won’t owe a deductible.
- Disappearing deductible programs: Some insurers reduce your deductible each year you go without an accident, potentially lowering it to $0. However, it typically resets after any claim.
Choosing a High vs. Low Deductible
As we mentioned, there are two main types of deductibles: high and low. Your insurer will typically require you to choose your deductible when you apply for a policy. Choosing the right deductible for you, your vehicle, and your financial situation is essential.
High Deductible Benefits:
- Lower monthly insurance premiums
- Better for those with a strong driving history
- Ideal if you have an emergency fund to cover costs
Low Deductible Benefits:
- Less out-of-pocket expense after an accident
- Good for drivers who want peace of mind
- Better if you live in a high-risk area or frequently drive
Key Factors to Consider:
When choosing a deductible, there are several things to keep in mind:
- Your budget
- Your emergency savings
- Your driving habits
- Your vehicle’s value
If you rarely file claims and can afford the higher up-front costs, a high deductible can save you money in the long run.
Find the Right Deductible for Your Situation
There’s no one-size-fits-all answer when it comes to choosing a deductible. The best option depends on your financial comfort, risk tolerance, and how much you’re willing to pay after an accident. Taking the time to assess your situation today can save you money and stress tomorrow.
Need help navigating your car insurance options?
If you’re unsure which deductible is right for your vehicle or lifestyle, the team at Masters Insurance is here to help. We have decades of experience helping Indiana residents determine their coverage options and deductible trade-offs, all while ensuring they get the protection they need at a price they can afford.
Contact us today to speak with a local Indiana agent or get a free quote.