What is a Car Insurance Deductible?

“Deductible” is a general insurance term for the amount that the policyholder pays before the insurance company starts to pay on a claim.¹ There are two deductibles in an auto insurance policy.

• Collision deductible: The collision deductible applies to at-fault accidents where you need your car repaired.
• Comprehensive deductible: The comprehensive deductible applies to incidents that are not collisions but lead to car damage, like theft theft, vandalism, or a tree falling on the car.

The only time a deductible doesn’t apply is when a third party damages your vehicle and is responsible for the repairs. In this case, you’d go through their insurance company and get your car fixed based on their liability coverage. If you go through subrogation, you may end up getting the deductible reimbursed.

In the auto insurance claims process, the deductible is your portion of the repair bill. You must pay this amount for a covered claim before your provider covers the cost of repairs. When it comes to deductibles, it’s important to choose an amount that you can afford to pay.

Assume that you were in an at-fault car accident. Your insurance policy has a $500 collision deductible, so you’ll be responsible for $500. The insurance company’s claims department will have you schedule repairs with an auto body shop.

The body shop will perform the repairs, and the insurance company will send a check for the amount of those repairs, minus the deductible. Before you can pick up your fixed car, you must pay the deductible. If you don’t have $500, you won’t be able to claim your car.

The problem could be compounded if the auto body shop has to keep your car. It may start charging storage fees, since it isn’t in the business of holding cars for extended periods once they are fixed.

The problem could be compounded if the auto body shop has to keep your car. It may start charging storage fees, since it isn’t in the business of holding cars for extended periods once they are fixed.

>> Related: A Guide to Indemnity Insurance

The higher your deductible, the lower your monthly premiums. However, as the example above shows, it is important to choose the right deductible for your situation. When you sign up for insurance, you’ll have options for a deductible for collision and for comprehensive coverage. A common set of options might look like this:

• $0
• $250
• $500
• $1,000
• $2,000

The higher deductible you choose, the lower your insurance premiums will be.² This is often a big motivation for choosing a higher deductible. But remember that you need to have that amount in cash or credit to get your car back from the auto body shop after an at-fault accident or comprehensive incident.

There are two deductibles, and they can be the same or different. You could choose a $500 deductible for your collision component and a $250 for the comprehensive component. This is called a split deductible. Generally, the collision deductible affects your rate more than the comprehensive deductible.

When getting a car insurance quote, ask the car insurance agent to run the numbers with different deductibles. Pay attention to how much you can save with the various deductible options.

For example, you might find that going from a $1,000 deductible to a $2,000 collision deductible will only save you a few dollars. That might not be worth the risk of paying an extra $1,000 in a claim. Your sweet spot might be the $1,000 deductible.

Whatever deductible you choose, make sure it would be affordable if you had to pay it tomorrow. While someone with a good driving record might think they are safe going with a higher deductible, you never know when an accident might happen, and you’ll have to come up with the cash.

Comprehensive and collision coverage are necessary if you plan on repairing your car after an accident. If you lease or finance your car, your lender will likely require you to hold these coverages. If you drive an older car that is fully paid off, or you’re confident you will not cause an accident, you might choose to forego collision and comprehensive coverage to save money.

If you opt for the coverage, you can elect to have a zero deductible. This is the most expensive option, the insurance company takes full financial responsibility if an accident happens. Some insurance companies reward good drivers with vanishing deductibles, which means the amount reduces for each six to twelve months without a claim.

You don’t pay a deductible in every type of claim. It depends on different factors, including whether you’re at fault and the type of claim you need to file.

Deductibles for Not-At-Fault Accidents

When you have an accident that is someone else’s fault, their insurance pays for the damages to your car. In this instance, you won’t pay a deductible as long as they are insured and the insurance company accepts blame. The liability portion of their policy will pay for your repairs without you owing a deductible.

However, if the other party doesn’t have insurance or doesn’t accept blame, you may need to go through your own insurance company. In this case, you most likely will pay your deductible to get your car fixed. Because you are not at fault, your insurance company may try to subrogate, meaning it will reclaim the losses from the other insurance company or party. If the company is successful in subrogation, it can get your deductible back.

Deductibles for At-Fault Accidents

When you have an at-fault accident, you’ll always be responsible for the deductible. There is no one to subrogate the claim to, since you caused the accident. In an at-fault accident, liability will pay for the damages to the other party, which means there is no deductible. However, you’ll need to pay the deductible for collision coverage if you want to fix your car.

Uninsured and Underinsured Motorist Deductibles

Uninsured and underinsured motorist coverage protects you if you get hit by an uninsured motorist. It works like liability insurance and covers bodily injuries. In some places, you can buy uninsured motorist coverage for property damage, in which case you wouldn’t pay a deductible.

However, if you didn’t elect for this coverage, you’d be left using your collision coverage and paying the deductible to get your car fixed. To get your money back, you would need to sue the other party in small claims court, win, and collect the funds.

You might usually think of insurance limits in terms of the liability portion of your insurance policy. This is the maximum amount that the insurance company will pay in a claim for an at-fault accident. Limits apply to property damage and bodily injury. If you have a limit of 50/100/25, this means you have $50,000 of bodily injury coverage per person with a total of $100,000 in injury coverage for all passengers, plus $25,000 in property damage coverage.³

But you also need to think about the limits of the comprehensive and collision coverage of the policy. The insurance company won’t fix every car after an accident. It depends on the amount of damages and the value of the car.

You don’t choose a limit for comprehensive and collision; the limit is really the fair market value of the vehicle. If damages come close to or exceed that fair market value, the policy will likely pay out for a total loss.

It’s trickier to choose a deductible if you have an older used car with auto insurance. Older cars are often harder to fix because their parts are in limited supply, increasing repair costs. The repair costs and the age of the car mean it’s likely to be labeled a total loss when you file a claim. Insurance companies consider a car totaled if the cost of repairs exceeds the value of the car.

Assume that you have a car with a fair market value of $5,000. If you have a $2,000 deductible and the car is totaled, you’ll only get up to $3,000 from the insurance company. Such a high deductible might not be worth it. On the other hand, getting some money for a totaled car can help you buy a new vehicle if your old car is not worth repairing.

Ultimately, you’ll need to decide whether a deductible on their older car is worth it. You don’t need collision or comprehensive coverage, so you could save the money for a new car.

When you buy an insurance policy, you have the option to add comprehensive and collision coverage to your policy.When you do, you choose the deductible that you will pay if you make a claim. The deductible is your financial portion of the claim.

The bottom line is that paying a premium for comprehensive and collision coverage can save you thousands of dollars in repair costs after an at-fault accident. You should choose a deductible that you are financially comfortable with, knowing that you can change it with a phone call to your provider. The best car insurance companies will pay out claims in a fair and timely manner after you pay your deductible.