How Do Auto Insurance Deductibles Work?
For many of us, we only marginally understand our insurance policy deductibles. So, it may be a good time to talk about auto insurance deductibles and how they work. Frankly, it’s a pretty common question, but luckily an easy question to answer. An auto insurance deductible is the portion of a claim you pay “out of pocket.” Or, insurance speaks, the portion of the risk you retain. For example, if you have a $500 deductible and $5,000 in damage from a covered accident, your insurance company would pay $4,500 to repair your car and you would be responsible for the remaining $500.
How do car insurance deductibles work?
You may be thinking of deductibles as being like your health insurance, an annual minimum you need to meet prior to your insurance coverage kicking in. This isn’t how auto insurance deductibles work. You are responsible for paying your policy’s stated deductible each time you file a claim on coverage where a deductible applies (eg. Collision Coverage). For example, if you total your car, your insurer will give you a payment for the vehicle’s current value, less your deductible. Therefore, if your car is worth $20,000 and your deductible is $1,000, your insurer will pay you $19,000.
Another way to think of your deductible is how they apply to smaller losses. Consider this, if the damage to your vehicle amounts to $800, and your deductible is that same $1,000, then your insurer will pay nothing. They only pay for losses that are above your deductible.
What coverages have deductibles?
Not all the coverages you can purchase on your auto insurance policy have deductibles. Comprehensive and collision are the two of the most common coverages with deductible options. However, if you live in a state where Personal Injury Protection is available, you may also have a deductible for this coverage. In some states you may have deductibles for coverages like uninsured/underinsured motorist property damage. If you have a deductible on a coverage, it will work the exact same way.
Learn more about how car insurance works.
What deductible should I choose for car insurance?
The amount of deductible you select should consider how much you can afford to pay at the time of a claim, balanced against your monthly budget for insurance expenses. You will typically have several options to select from since deductible amounts typically range from $100 to $2,000. The most common deductible our drivers choose is $500. Basic rule of thumb:
Higher deductible = Lower car insurance rate and higher out of pocket costs
Lower deductible = Higher car insurance rate and lower out of pocket costs
Choose a deductible amount that makes you comfortable. There is no right selection, this is really a financial choice you must make based on your budget.
How likely are you to file a claim?
In some ways, the selection of a deductible is a bit of a probability question. You might consider selecting a high deductible because you’re betting against the likelihood that you’ll have an accident. The reality is that approximately 12-16% of drivers who carry comprehensive/collision coverage will have a claim in a given year where their deductible will be required. So, it’s true, the likelihood is in your favor. However, if you’re in the 12-16%, you will want to make sure you have the funds available to pay your deductible, otherwise you bet didn’t pay. Additionally, if you have a history of accidents or you drive a lot on busy roads, you may be even more likely to file a claim. These are all the types of things to consider when selecting a deductible.
If you live in a state where cracked windshields are common, you may want to choose a low deductible for windshield replacements. Depending on your state and insurer, you may have no deductible on glass replacement coverage or have the option to select a $0 deductible—which will increase your rate.
How will your deductible impact your price?
Higher deductibles equal lower premiums. It’s pretty simple, but just how much will a higher deductible save you? If we consider a hypothetical $500 semi-annual premium for collision coverage, the chart below shows examples of how adjusting a deductible can change the price. Increasing your deductible from $100 to $250 gives the biggest jump in savings, while going from $1,000 to $2,000 offers the lowest amount of savings.
Deductible | Monthly Price |
$100 | $250 |
$100 | $182 (27% lower) |
$500 | $129 (29% lower) |
$100 | $89 (31% lower) |
$500 | $84 (6% lower) |
Premium amounts are hypothetical. The change in premium based on changes in deductible amounts reflect simulated rates that approximate the difference in price charged.
When do you pay a car insurance deductible?
After your adjuster has had a chance to review your claim and approve payment, your deductible will be applied to any payout to your or a body shop selected to do the repairs. Deductibles are not paid to the insurance company. They are simply subtracted from your claim’s approved payout. So, if you have a claim approved for $5,000 and your deductible is $250, your insurance company will issue you a check for $4,750. If the claim payment is made directly to the shop that did repairs, then you will have to pay the $250 before you can take your car home.
When you don’t have to pay your deductible
A deductible won’t apply to you in the following scenarios:
- An insured driver hits you
If the other driver is officially deemed at fault, their insurance company can pay for your repairs if you choose, and you won’t have to pay your deductible. Or, if you have collision coverage, you can choose to go through your own insurer who will seek reimbursement (including your deductible) from the other driver’s insurance company. In situations where fault is shared, you may end up paying all or part of your deductible.
Keep in mind, if you’re hit by an uninsured or underinsured driver, a deductible may apply to your uninsured/underinsured motorist property damage coverage in certain states.
- Another person files a claim against your liability coverage
There is no deductible on a liability claim. That means you pay nothing out of pocket for an accident claim in which your insurer pays for the damages and/or injuries you caused to another person, up to your policy’s limits.
- You elected for no deductible
In some states, you’ll have the option to select a $0 deductible on your policy’s comprehensive coverage.
- You have free repairs on glass claims
At Progressive, in most states, if we can repair (instead of replace) any glass breakage, you won’t have to pay your deductible.
