If you’re a new vehicle owner preparing to purchase a car insurance policy, knowing what your deductible is and how it will impact your out-of-pocket costs should you need vehicle repairs is key to landing the right policy for your needs and budget.
What Is A Car Insurance Deductible?
A car insurance deductible is the amount of money you pay before insurance begins covering costs. For example, if you’re in an accident and your policy has a deductible, you’ll be required to pay that amount before the insurance covers the remaining repair costs.
How Does a Car Insurance Deductible Work?
A deductible is a predetermined amount of money that you agree to pay toward repair costs on your vehicle before your insurance company pays the balance. This is often called your “out-of-pocket” expense.
Consider this scenario: You have comprehensive insurance with a $500 deductible. The roads are icy, and you slide off the road and hit a tree. The repair estimate is $1000, which means you will pay $500, and your insurance company will cover the remaining $500.
Deductible amounts can vary, and many shoppers choose a higher deductible price to keep the monthly premium–or the amount paid monthly for insurance coverage–cost low in order to save money in the short term. This is a good option if your odds of being in an accident or having a loss are minimal, but know that if you were to get into an accident, a higher amount of the repair costs would come out-of-pocket.
Not all insurance policies have deductibles. When you opt into an auto insurance policy, there are different types of coverage, with each coverage having different features:
- Liability Insurance: This insurance covers damages and other expenses that other people incur when you’ve caused the accident, and does not have a deductible.
- Comprehensive Insurance: Comprehensive insurance covers damage to your vehicle from events that are not related to a car accident – fires, storm damage, vandalism, floods, etc., and does have a deductible.
- Collision Insurance: This type of insurance covers your vehicle, no matter who is at fault, and does have a deductible.
- Personal Injury Protection: PIP insurance covers medical expenses for you and your passengers. This type of policy is required in some states and not offered in others. It does have a deductible (except in Utah).
- Uninsured and Underinsured Motorist Insurance: If you’re hit by a driver who is not insured or doesn’t have enough insurance to cover your damages, this policy will step in. It does have a deductible.
- Medical Payments Insurance: This insurance helps cover your medical expenses after an accident and does not have a deductible.
What Is Your Car Insurance Deductible and Can You Change It?
Your deductible is set when you purchase your insurance policy. While $500 is the most common amount, there can certainly be situations where someone opts for a higher or lower amount. If you’re wondering about your specific deductible, it’s listed on your auto insurance declaration page, can be found on your online insurance portfolio, or you can call your insurance company and ask for that information.
It is possible to change your deductible, but that will also change your policy and potentially change your coverage. This means that you’ll have to connect with your insurance agent or call your company directly and tell them you’d like to make a change. Make sure you discuss how your premiums will change if you adjust your deductible.
Choosing Your Deductible Amount
Picking the right deductible depends on your budget, driving habits, financial situation, and the type of car you drive. All of these factors need careful consideration.
- Budgeting. Because a high deductible means lower premiums, you’ll want to do a little math with your agent to see which option fits your budget.
- Emergency Funds. What is your emergency reserve, and can you afford a high deductible? If you can’t afford to pay a high deductible, you won’t be able to get your vehicle fixed until you can come up with that amount.
- Driving Habits. If you have a lot of accidents, you’ll want a lower deductible, so you are paying less out of pocket and your insurance covers more of the expenses. Good drivers with no history of accidents might be happy to have a higher deductible and lower premium costs.
- Value of Your Vehicle. If you’re driving a high-end luxury vehicle, even small accidents will cost a lot, which means your premium will be higher. It’s usually best to go with a high deductible here. If you have an old car that barely gets you around, you’re already going to have a low premium, so you might want to consider a low deductible — or dropping collision or comprehensive coverage all together if your state’s auto insurance rules allow for it.
- Leasing. If you’re leasing a car, you might want a lower deductible because you’ll need to return it in working condition. In fact, some lenders may have requirements for deductibles. For example, a lender may set a maximum deductible of $1,000 to ensure your insurance can help if you’re in an accident.
One factor to consider is each type of policy can have a different deductible. If you’re concerned about vandalism or maybe you’re worried about hitting a deer, then you might want to choose a low deductible for a comprehensive policy because you feel those are strong possibilities. At the same time, if you know you’re a good driver, then you might want a high deductible for your collision insurance because you don’t expect that to happen.
Just remember, it’s better for you to consider all of these factors before setting a deductible amount. While the price of premiums is a part of the equation, it shouldn’t be all of it because that can leave you in a financial bind should an accident occur.
When the Collision Is Not Your Fault
If you’re in a car accident and you are not at fault, then you shouldn’t have to pay the deductible. While this is often the case, it’s not always this cut and dry.
Some states are considered no-fault states and others are at-fault states. What this really boils down to is how your state treats the “fault” portion of an auto accident and medical or injury expenses.
Another issue is the percentage of fault. Sometimes it’s decided that both parties had some blame for the accident, in these situations the costs are split.
To simplify this explanation, consider a collision where no people are injured, and one person is entirely to blame. In both at-fault and no-fault states, the responsibility of paying for property damage falls to the person who caused the accident. This means that your damages, including the deductible, should be paid by the other person’s insurance.
Some people opt to have their own insurance cover the charges and pay their deductible while the insurance companies work out the details. When they’re done, you’ll be reimbursed for the deductible and your insurance company will be paid for their expenses.