What Is a Car Insurance Deductible and How Does It Work?

When buying auto insurance, your car insurance deductible is one of the most important factors that determines how much you pay for coverage. Your deductible dictates what you owe each time you file a covered claim with your insurer, and it's worth taking the time to make sure yours isn't too high or too low for your budget and needs.

Learn what car insurance deductibles are, how they work, and the role they play in your insurance costs.

What is a car insurance deductible?

A car insurance deductible is the amount you pay out of pocket on certain insured losses before your car insurance covers anything. Types of policies that often have deductibles include:

• Collision coverage
• Comprehensive coverage
• Personal injury protection (PIP) (or no-fault insurance)
• Uninsured or underinsured motorist coverage

Liability insurance does not have deductibles.

Think of a deductible as sharing risk with your insurer. In other words, it gives you skin in the game. If you're responsible for paying a portion of a claim, you might be less likely to drive carelessly or leave your car unsecured. A deductible helps mitigate these risks for the insurance provider.

Deductibles vs. premiums

A deductible is the amount you pay before your insurer covers the rest of the costs when you file a claim, while your insurance premium is what you pay for car insurance coverage. You make premium payments monthly or annually, regardless of whether you actually use your coverage, but you only pay your deductible when you get into an accident or otherwise need to make a claim. If you're filing a claim through your insurance, you'll pay your deductible (whether you're at fault or not).

Your insurance deductible is accounted for in your insurance premium, and the two are inversely related. As a rule, the higher your deductible, the lower your premium, and the lower your deductible, the higher your premium.

How do car insurance deductibles work?

Car insurance deductibles tend to be a fixed amount. In general, deductible amounts can range from $0 to a few thousand dollars, but the most common car insurance deductible is $500.

When you purchase your policy or update an existing policy, you can choose the amount of your deductible for certain coverages. You can set a different deductible for each type of coverage. For example, you might choose a $500 deductible for collision insurance and a $1,000 deductible for comprehensive insurance. This means you'd have to shell out less money if you caused an accident (collision) than if you needed coverage for theft or other non-collision types of coverage (comprehensive).

If you file a claim and it's approved, the amount of your deductible is deducted from the total your insurance company will pay. You don't pay this to the insurance company, though; it would go straight to the dealership or repair shop. For instance, if you have a $500 deductible and get into an accident that results in $5,000 in damages, you'd pay the full $500 toward the costs, and your insurer would pay $4,500. 

What happens when you meet your car insurance deductible?

With car insurance, you're required to pay your deductible each time you file a claim. Deductibles for past claims don't impact deductibles for future claims, which is why there's little reason to go through your insurance for damages that cost less than the amount of your deductible.

This is unlike health insurance deductibles, where you stop paying after you've hit your deductible for the year.

When do you pay the deductible for car insurance?

Just because you have a deductible doesn't mean you'll pay it every time your car needs repairs. As a rule, if you go through your insurance to make a claim, you'll pay your deductible. If you get into an accident and the other driver goes through their insurance, you usually won't. Here are some common scenarios when you would or wouldn't generally pay your deductible:

Situation	Pay Deductible?
Another driver is at fault for the accident (and makes a claim through their insurance)	No
A deer hits your car	Yes
An uninsured or underinsured driver is at fault for the accident	Yes
You have personal injuries and make a PIP claim	Yes

If you're at fault and file a claim, you'll definitely pay your deductible. If you're not at fault, whether you pay your deductible depends on the other driver's coverage.

There are also times when you might file a claim with your insurance even though you aren't at fault, just for simplicity's sake. If the other party is being difficult or the insurance company doesn't respond, you may file a claim with your insurance and pay the deductible. In cases like this, you can try to recover your costs by filing for subrogation.

How deductibles impact your auto insurance premium

As mentioned, deductibles help mitigate the risk of the insurance provider having to pay out on a claim. The more you're willing to contribute out of pocket on a covered loss, the less your insurer has to pay.

This means if you choose a higher deductible, your monthly premium may be lower. If, however, you choose a lower deductible, you'll have a higher monthly premium.

Keep in mind that for each component of your auto policy that includes a deductible, you can choose a different deductible amount. This gives you more control over where you think you need the most coverage and where you might not need as much.

For example, I like a low deductible for collision so I know I'm protected financially no matter what happens on the road, but I keep the comprehensive deductible a little higher because I don't live in an area prone to a lot of weather damage or theft.

You can also play with the car insurance types you choose to keep your premiums where you want them while ensuring you have adequate coverage.

Is a high or low deductible better?

There is no one deductible amount that's going to work well for every driver. A good deductible for you depends on your budget, driving history, and more.

Consider these factors when choosing a deductible:

• How much money you have in your emergency fund: If you have a $1,000 deductible, it means you're responsible for paying $1,000 of a covered loss. There's no telling when you might get into an accident, so it's important to have this amount of money readily available. As long as you have enough in savings to cover your chosen deductible amount, it can be smart to pick a higher deductible in return for a lower premium.
• What you can afford to pay for car insurance: Generally, the higher your deductible, the lower your monthly auto insurance payment and vice versa. When you're trying to decide on a deductible amount, consider how much you can afford to pay each month for your policy.
• How likely are you to get in an accident or need the coverage: I know you don't have a crystal ball, but if you are not on the road much, you're less likely to get into an accident, so carrying a higher deductible may be a good option because you'll have lower premiums.
• The value of your vehicle: The newer and more expensive your vehicle, the more coverage you might want. After all, you're probably more inclined to repair a newer vehicle than an older one so a lower deductible might be appropriate. If, however, you're driving a beater, you may choose to forgo collision or comprehensive coverage entirely, especially if your insurance premium and deductible add up to more than your car is worth.

How to change your car insurance deductible

If you consider the above and decide it's time for a higher or lower deductible, all you have to do is update your policy. You can do this when it's time for renewal after six or 12 months, depending on your policy, but most car insurance companies also give you the option to change it at any time during an active policy. We suggest contacting a representative directly to discuss your options.

Just note that if you decrease your deductible, you'll owe more each month or year. Be prepared for this to be effective by the next policy period after you make the change and account for the added cost in your budget.

FAQs

Bottom line

A car insurance deductible is the portion you pay out of pocket when you file a claim for certain losses. Because it's up to you to decide how much you're willing to pay toward a claim, it's important to consider the factors that play a part in determining which deductible amount is right for you.

I suggest you take some time to shop around to find the best policy for you. Try to find a balance between cost and adequate coverage. When it comes to your deductible, choose the amount you're comfortable being responsible for paying in the event of an unexpected accident.