Not sure how auto insurance deductible works?
When shopping for auto insurance, you may come across the word “deductible” and wonder how it will affect you and your insurance costs, and when you’ll need to use it.
Auto insurance deductible is the amount of money you have to pay after filing an approved insurance claim. Your insurance company covers the rest, up to the limit of your coverage.
Let’s look at how a car insurance deductible works, when you need to pay it (and when you don’t), and the factors you need 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 insurance company pays the rest, up to your policy’s coverage limit. Comprehensive coverage and collision coverage both have deductibles, while other types of coverage, such as liability insurance, often have only coverage limits. The most common deductible amounts for auto insurance are $250, $500, and $1,000.
Let’s say you hit a guardrail on the road, filed an insurance claim, got it approved, and took your car to the shop for repairs. Repairs total $5,000 and you have a $500 deductible. The insurance company would give the shop $4,500, and you would have to pay the shop the other $500 when the repairs are complete. Or you could pay for the cost of repairs up front, and your insurance company would reimburse you, minus the deductible.
But what if your car is determined to be a total loss? If that happens and your claim is approved, the insurance company will reimburse you for the actual cash value of the car, up to your coverage limit, less your deductible. For example, if the insurance company values your car at $8,000 and you have a $500 deductible, the insurer will pay you $7,500.
Please note that you will have to pay your deductible for each claim you file. An auto insurance deductible is not a one-time amount you pay each year before services are covered, as is often the case with health insurance deductibles.
Do I have to pay the deductible even if I am not at fault for the accident?
In a nutshell, that depends on where you live.
In most states, if you have an accident where the other driver is at fault, your liability insurance will usually cover your repairs, up to the limit of coverage.
But if you live in a “no-fault” state, it doesn’t matter who caused the accident. If your car was damaged and you have collision insurance, you’ll need to file a claim with your insurance company and pay the deductible before your coverage kicks in.
You may also have to pay a deductible in the following cases.
- If you have an accident y his car is the only one affected: he loses control of the vehicle on wet pavement and collides with a tree. Your collision insurance will likely help pay for repairs, up to the limit of your coverage, after you pay your deductible.
- Your car is stolen or damaged by vandalism, a natural disaster, a falling object or an animal. Your comprehensive coverage insurance usually helps pay for repairs up to the limit of your coverage, less your deductible.
- Your windshield cracks or breaks completely. Comprehensive or comprehensive coverage usually covers glass breakage, up to the limit of your coverage, less the deductible.
Should you have a high or low deductible?
The best auto insurance deductible for you depends on your finances and needs. Remember that a high deductible often means a lower car 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 to be repaired or I even had to get a new one? Could you realistically pay $1,000 if your car were damaged? If you don’t have money set aside in an emergency fund, a lower deductible might be more convenient.
- How much can I pay each month for car insurance? There are a number of factors that affect car insurance rates. You may only be able to pay the premium if you choose a higher deductible. If this is the case, be sure to set aside some money in case you have to file a claim and pay the deductible.
Whats Next?
In addition to the deductible, factors such as age, where you live, the age and value of the vehicle, and driving history can cause insurance rates to go up or down.
Be sure to shop around and get auto insurance quotes from multiple companies. When comparing them, make sure that the deductibles and liability limits are the same on all quotes, so that the comparison is fair.