What Your Deductible Does to Your Insurance Premium
You’ll have to choose your insurer and additional coverages when you purchase auto insurance. Additionally, it would help if you decided on your insurance deductible, which can be trickier than it seems. Should you choose a lower deductible because you feel more secure or try to save money by choosing a higher one?
Many things must be taken into account, including your driving history, emergency savings, and the costs of various deductibles, when deciding on the best deductible for you. Below is information on your options that you should know.
Main Points
- Your deductible is the portion of a claim’s costs that you are responsible for paying.
- When selecting a deductible, take into account the value of your car, your emergency fund, and the cost of insurance.
- Higher deductibles may enable you to pay lower premiums, but they also increase your out-of-pocket expenses in the event of an accident.
- Your state’s law, the requirements of the dealership, and waivers may also have an impact on the deductibles.
What Is the Deductible for Your Insurance?
The portion of the cost that you must cover out of pocket before your insurer covers the remaining balance is known as your insurance deductible. By selecting your deductible, you can decide how much financial responsibility you want to bear for claims and repairs. Typically, a deductible is only necessary for specific types of auto insurance coverage, such as:
Collision coverage: Covers the cost of repairing your car after it is damaged in an accident with another car (regardless of who was at fault) or in an accident with a building, such as a fence or a guardrail.
In the event of hail damage or theft, comprehensive coverage will pay to repair your car.
Additionally, you might have a deductible in some states for:
- Uninsured/underinsured motorist coverage: Pays for repairs to your car following damage from a driver who is either uninsured or has insufficient coverage.
- Pays your medical bills if you have been hurt in an accident thanks to personal injury protection (PIP).
- MBI (mechanical breakdown insurance): Functions much like a warranty in that it pays for some mechanical repairs.
- The windshield of your car can be repaired thanks to auto glass coverage.
Depending on your coverage, who was at fault, your insurance company, and the laws of your state, you may have to pay a deductible after an incident. For instance, if you qualify for a deductible waiver on your collision insurance in California, your insurer will cover the deductible in the event that you are hit by an uninsured driver. Some insurance companies might not impose a deductible on windshield repairs or might provide a different deductible.
The Function of a Deductible
Imagine a tree branch damagingly falling on your car. You submit a comprehensive insurance claim, and the repair shop estimates that the repair will cost $1,000. Your deductible determines how much you’ll pay:
| If your deductible is… | You pay | Your insurance pays |
| $250 | $250 | $750 |
| $500 | $500 | $500 |
| $1,000 | $1,000 | $0 |
You may decide not to file a claim if the cost of repairing the damage is equal to or nearly equal to your deductible because you would forfeit any claim-free discounts.
Important: There is no annual cap or out-of-pocket maximum; you are responsible for covering the deductible for each claim.
When Should a Deductible Be Paid?
After the auto shop has finished the repairs, you usually pay your deductible to them directly. The amount the insurer sends to the repair shop will be reduced by the amount you have to pay. For instance, in the scenario mentioned above, assuming a $500 deductible, the insurance provider would pay the auto repair shop $500, and you would be responsible for the remaining $500.
How to Pick an Insurance Deductible for Your Car
According to W. Michael McBride, president of Mason McBride Inc., which offers casualty insurance in Michigan, “Deciding your deductible is very much a subjective judgement.” Consider the following three factors the most when determining your deductible:
- The worth of your car
- Your capacity to withstand a sudden loss of money
- How different deductibles affect your premium
How Much Is Your Vehicle Worth?
Before choosing your deductible, find out how much your car is worth to your insurance company. The value of the car should be compared to the cost of potential repairs. It may not be worthwhile to purchase supplemental coverages as the value of the car declines because the likelihood of a total loss increases. For instance, the Kansas Insurance Department suggests that drivers of vehicles under $3,000 carry only liability insurance.
But McBride noted that given the current scarcity of used cars, you might also want to take into account how crucial your car is to you as a mode of transportation. You might want to keep having comprehensive collision coverage to cover repairs if you can’t get to work or school without your car.
How Do You Organize Your Emergency Fund?
Saving money on insurance frequently involves settling for a higher deductible in exchange for a lower yearly premium. But carefully consider how much you might have to pay out of pocket to fix a car. Would you be able to come up with $500 on the spot for repairs if you don’t have an emergency fund? Let’s say $2000.
You might prefer the security of a lower deductible if you’re unsure that you could come up with the money right away when you need it.
What Do Different Deductible Options Cost?
According to McBride, there is a general rule of thumb: Examine diminishing returns when considering deductibles. The savings may not outweigh the possibility of having to come up with an extra $1,500 after an accident if the cost of a policy with a $2,500 deductible isn’t significantly lower than a policy with a $1,000 deductible.
Depending on how you evaluate your own risk or financial concerns, you might be able to select different deductibles for various types of coverage. Because comprehensive insurance is typically less expensive than collision insurance, McBride noted that people frequently choose a lower comprehensive insurance deductible than collision insurance.
Additional Issues to Consider When Choosing Deductibles
While the three factors mentioned above are the most important when choosing a deductible, you should also consider these questions.
Is There a Minimum Required Deductible?
Depending on the state and your insurer. Many coverage deductibles begin at $250 or $500, but some insurers offer a $0 deductible option for some coverages, and others might mandate higher deductibles for higher-risk drivers. For instance, New York mandates a minimum deductible of $100 for collision coverage and $50 for comprehensive coverage.
The car dealer or financial institution may set a maximum deductible if you’re leasing a vehicle.
What Are the Chances That You Will File a Claim?
The following may increase your likelihood of making a claim:
- Your record contains accidents
- Drive on crowded streets
- Residing in a city where vehicle theft is widespread
Think about how likely it is that you will have to pay your deductible, possibly more than once, when making your decision.
Observation: Depending on the facts, the state, the insurer, the expense, and a number of other claims, filing a claim could result in a rise in rates for up to five years.
Can You Use Other Insurance to Reimburse Medical Expenses?
Instead of relying on auto insurance coverage like medical payments or PIP insurance, you might be able to use health coverage in some states to cover the costs of injuries sustained in auto accidents. In this situation, you could save money by selecting a lower limit or a higher deductible for those coverages.
Is a Disappearing Deductible a Smart Move?
Your auto insurance can be upgraded with a paid option called a vanishing deductible. Each program operates slightly differently, but in general, the insurer rewards you with a lower deductible for every year you go without making a claim. For instance, you might reduce your collision deductible by $100 for each year without a claim.
According to McBride, disappearing deductibles might be a good option for someone who has a clean driving record but wants a higher deductible. If your deductible must be paid in the event of a claim, the “vanishing” portion can help lower the cost. These policies typically cost slightly more than high-deductible plans but less than low-deductible ones.
You cannot “vanish” your deductible below the required minimum deductible in states where it is mandatory. As previously mentioned, the collision deductible in New York cannot be less than the legal minimum of $100.
Is the Deductible Waiverable?
Deductible waivers are available under certain conditions in some states or insurance policies, including:
Total loss: If your car is totaled due to a covered loss, some insurers offer an optional waiver of the total loss deductible. For your financed or leased car, you could have gap protection coverage from the dealership, which would cover your deductible in the event of a total loss.
Repairing a cracked windshield rather than replacing it could result in your insurer waiving the comprehensive deductible, but some states require insurers to replace your windshield without charging a deductible.
Some auto repair shops promote “deductible rebates” or promise to cover your deductible in the event of repairs. Consult your insurer before accepting any of these offers, though, as doing so might be against the terms of your insurance policy.
Most Commonly Asked Questions
What Happens If Your Auto Insurance Deductible Isn’t Paid?
Consider delaying the repairs until you have enough money saved up to pay your deductible if you cannot pay it. You could borrow money to cover the deductible if your car is already in the shop for repairs, or you could ask them to hold your car until you have some extra cash.
Which Car Insurance Deductible Has the Highest Amount?
Your state and insurance provider will determine the highest deductible that is available to you, but according to McBride, a high deductible typically ranges from $1,000 to $2,000. But deductibles can rise significantly. They can range from $5,000 to $10,000 for collectibles or specialty vehicles.
What Is the Typical Car Insurance Deductible?
According to the company, the most popular deductible chosen by Progressive policyholders is $500. However, there is no published national average across states and insurers.
