A car insurance deductible is the amount you’d have to pay out of pocket after a covered loss before your insurance coverage kicks in.
Car insurance deductibles work differently than medical insurance deductibles — with car insurance, not all types of coverage require a deductible, and you usually get to choose your deductible amounts.
Typically, the higher you set your deductible, the lower your monthly car insurance premiums will be — but you don’t want to set it so high that you wouldn’t be able to actually pay that amount if needed. Here’s a quick primer on how car insurance deductibles actually work, and how to decide which deductible amount is right for you.
What does a car insurance deductible mean?
A deductible is the amount of money you have to pay out of pocket per claim before your car insurance will cover the rest.
For example, if you backed your car into a telephone pole and dented your bumper, your collision insurance would pay for the cost of the damage. But let’s say your collision coverage had a deductible of $500. If the total cost of repairs comes to $1,800, your insurance will only pay for $1,300.
Total cost of the damage
However, the terminology here can be tricky. While you are expected to pay your deductible before your car insurance pays the rest of the claim, that doesn’t mean you are literally handing over the money before you get a check.
Instead, the insurance company will just subtract the amount of your deductible from your claim before writing you a check.
In the example above, if you file a claim for $1,800 and you have a $500 deductible, you would get a check from your insurance company for $1,300 after the claim is settled and you would be expected to pay the additional $500 towards the repairs out of pocket.
How do I find my car insurance deductible amounts?
You probably picked your deductible amounts when you first bought auto insurance, and you might not remember what you chose for each type of coverage. You can find your deductible amounts listed on your policy’s declarations page, which is basically a summary of your car insurance coverage.
What kind of coverage requires a deductible?
Not all types of car insurance coverage require a deductible. Liability insurance, which covers the costs if you damage someone’s property or injure someone with your car, never requires a deductible.
Liability coverage is the backbone of most car insurance policies, and in most states in the U.S., you’re required by law to have it. But other types of insurance coverage (including some required coverages) that are considered part of a full coverage policy do require a deductible, including:
Collision coverage: Pays for damage to your vehicle after a collision, no matter who is at fault. Your collision deductible determines how much you will be responsible for paying toward a claim. Collision coverage is not required by law, but it may be required by your lender if you are financing your vehicle.
Comprehensive coverage: Pays for non-collision damage to your car, like damage from fire, theft, weather, falling objects, vandalism, and animals. Your comprehensive deductible is separate from your collision deductible, which means they don’t have to be set at the same amount. Comprehensive coverage is not required by law, but it may be required by your lender if you are financing your vehicle.
Personal injury protection: Some states require drivers to have personal injury protection (PIP) coverage. PIP pays for your medical expenses in an accident up to the limits of your policy, no matter who was at fault. PIP may or may not have a deductible, depending on your state.
Uninsured motorist coverage: Sometimes referred to as UM coverage, uninsured motorist coverage pays for your medical expenses if you are hit by a driver who is uninsured or underinsured. UM coverage is required in some states and may or may not require a deductible.
How do I decide what my deductible should be?
Generally, the higher you set your deductible, the lower your car insurance rates. That’s because you’re taking on more of the cost after a claim, rather than putting it on your insurer. The opposite is also true, choosing a low deductible means you’ll have to pay a higher premium.
For example, if you have a deductible of $1,000 and you file a $10,000 claim for car repairs, your insurance company will write you a check for $9,000 and you will be expected to cover the last $1,000 as your share of the repair cost.
But if you only have a $50 deductible, the insurance company will write you a check for $9,950 and you would only be expected to cover just $50 worth of the repairs.
Because of this, drivers who choose a higher deductible will pay a lower premium, while drivers who choose a lower deductible will pay a higher premium.
You may be tempted to choose a high deductible in order to get a lower insurance premium, but remember, there’s a very real possibility you’ll have to pay that deductible someday. When choosing a deductible, make sure it’s an amount you’d actually have on hand if you needed to pay it.
What if my car insurance deductible costs more than my repairs?
Having to pay a deductible means you can do a sort of cost-benefit analysis before you make a claim with your insurer — and sometimes, if the damage is minimal, it may make more sense not to file a claim.
If you’ve been in a small at-fault accident in which you were the only driver involved, it will make sense to pay out of pocket if your deductible is higher than (or close to) the cost of your repairs. So if you hit a telephone pole and the cost to fix the damage is about $500, the same as your deductible amount, it’s not worth it to file a claim.
Car insurance companies won’t pay anything toward a claim that is less than your deductible but, depending on the situation, they may add the claim to your record and consider it when calculating your rates during your next renewal period.