What is a Car Insurance Deductible?
A car insurance deductible is the dollar amount you agree to pay out of pocket on certain auto insurance claims. Once your deductible is satisfied, your insurance company pays the remainder of your repair costs, up to any applicable policy limits.
How does a car insurance deductible work?
In most cases, you don’t make an actual payment to satisfy your deductible. Instead, your insurance company will simply subtract (that is, deduct) your deductible amount from the final claim cheque.
For example, let’s say a falling tree limb badly damages your car’s roof, and the repair shop quotes you $3,000 to repair the damage. Your comprehensive deductible is $500.
Your insurance company will now pay up to $2,500 for the repairs. They’ll want to send an adjuster to verify the extent of the damage and confirm the mechanic’s estimate of the total cost to repair it. If they agree, they may send you a cheque for $2,500 or, if you bring your car to a preferred repair shop in the insurer’s network, you may pay your deductible directly to the repairer.
Auto insurance deductibles are a form of risk sharing that keeps the overall cost of car insurance low.
Without deductibles, car owners could file insurance claims for damage as minor as $50 or $100. That repair bill doesn’t cost the owner much, but when thousands of policyholders make claims for that amount, the cost to insurance companies adds up quickly.
Deductibles shift financial responsibility for those minor repair costs onto policyholders, meaning that insurance companies can charge less in premiums and deliver reliable payouts on major claims that individual car owners wouldn’t be able to cover without insurance.
Always pay your deductible
While paying a deductible reduces your overall claim amount, it’s important to pay it every time you make a claim. Deductible waivers are a major form of insurance fraud, and you should not trust any mechanic or body shop that offers you one.
The only situations in which you can avoid a deductible are:
- If your insurance company declares your vehicle a total loss: In some cases, insurers will waive the deductible on total loss claims.
- If your insurer offers disappearing deductibles: Some insurers reward safe drivers by reducing deductibles by a certain percentage each year you don’t make a claim.
Car insurance deductible vs. premium: What’s the difference?
Your car insurance deductible is the amount you pay out of pocket in the event of a claim. Your car insurance premium is the amount you pay on a regular basis (monthly or annually) to keep your policy active.
Both are payments, but you only pay your deductible if you’re making a claim to which a deductible applies. (Not all car insurance claims involve deductibles—more on this in a minute.)
What types of car insurance have deductibles?
Deductibles generally only apply to the types of coverage that deal with physical damage to your car. Those include:
- Collision coverage
- Comprehensive coverage
- Specified Perils/All Perils coverage
- Uninsured automobile coverage
- Direct Compensation Property Damage (DCPD) coverage (very rare)
You’ll get to select a deductible for each of these parts of your insurance policy. In some cases, you might want to choose different levels of deductible for different coverage to customize how you’re able to use your coverage.
For example, you might choose a $500 deductible for your comprehensive coverage to ensure that it’s easy to make a claim in the event of severe damage or theft, but opt for a higher collision deductible, like $1,000.
Liability coverage and no-fault medical coverage, such as statutory accident benefits, typically don’t involve a deductible.
How to choose the right car insurance deductible
Your chosen deductible affects the amount you’ll pay for insurance coverage.
The rule of thumb: A lower deductible means higher premiums, and a higher deductible means lower premiums.
Take your overall financial situation into account when selecting a deductible. The higher your deductible, the less you’ll pay month to month, which could be an advantage if you’re trying to save money or going through a tight patch.
But if you raise your deductible too high, you could essentially make your coverage useless. If you can’t afford your deductible, you can’t afford to make a claim.
When choosing a deductible, think about:
- How much you have in savings
- How much a high deductible would save you in premiums over one year
- The maximum repair cost you’d be comfortable covering on your current budget vs. making an insurance claim
Is a high or low deductible better?
There’s no single “right deductible” that works for every driver. Both high and low deductibles come with advantages and disadvantages.
High deductible
Low deductible
Remember, a single car insurance policy might have multiple types of deductibles that can be set at different amounts. You can find a balance between high and low deductibles by selecting a low deductible for one type of coverage and a higher deductible for another.
Setting a deductible can be a hard decision. If you want expert guidance, you may want to speak with a licensed insurance advisor who can look over your insurance contract and offer some recommendations.
FAQ: Car insurance deductibles
This article is for general information only and is not insurance or legal advice. Examples and any sample quotes or rate ranges are illustrative and do not constitute an offer or guarantee of coverage, price, or eligibility. Actual coverage, discounts, and premiums depend on your individual circumstances and the insurer provider; if there is any discrepancy, your policy and insurer documentation govern. For advice about your situation, speak with one of our licensed insurance professionals.