To choose the right deductible for you, you’ll need to consider your driving history, your emergency fund, and the costs of different deductibles, along with several other factors. Here’s what you need to know about your options.
What Is Your Insurance Deductible?
Your insurance deductible is the amount you’ll pay out of pocket when you make a claim before your insurer picks up the rest of the bill. Choosing your deductible allows you to decide how much financial responsibility you want for claims and repairs. A deductible is typically only required for certain types of auto insurance coverage, such as:
Collision coverage: Pays to repair your car after it’s damaged in an accident with another vehicle (no matter who’s at fault) or in a collision with a structure, like a fence or a guardrail. Comprehensive coverage: Pays to repair your car after a non-collision situation such as hail damage or theft.
In some states, you may also have a deductible for:
Uninsured/underinsured motorist coverage: Pays to repair your car after damage caused by a driver without insurance or without sufficient coverage. Personal injury protection (PIP): Pays your medical bills when you’ve been hurt in an accident. Mechanical breakdown insurance (MBI): Covers the costs of some mechanical repairs, much like a warranty. Auto glass coverage: Pays to repair damage to your car’s windshield.
Whether you pay a deductible after an event depends on your coverage, who is at fault, your insurance company, and your state’s laws. For example, in California, you could qualify for a deductible waiver on your collision coverage, which means your insurer will pay the deductible if an uninsured motorist hits you. Some insurers may not charge a deductible for windshield repairs or may offer a different deductible for these repairs.
How Does a Deductible Work?
Imagine a tree branch falls on your car and causes damage. You file a claim on your comprehensive coverage and the repair shop estimates it will cost $1,000 to fix. What you’ll pay depends on your deductible:
When Do You Pay a Deductible?
You’ll typically pay your deductible directly to the auto repair shop after they complete the repairs. The insurer will deduct your portion from the total they send to the repair shop. For example, in the scenario above, with a $500 deductible, the insurance company would pay the auto repair shop $500, and you’d be expected to pay the other $500.
How to Choose Your Car Insurance Deductible
“Deciding your deductible is very much a subjective judgment,” said W. Michael McBride, president of Mason McBride Inc., which provides casualty insurance in Michigan. When choosing your deductible, think mostly about three elements:
Your vehicle’s valueYour ability to withstand an emergency financial lossThe effect of various deductibles on your premium
What Is the Value of Your Vehicle?
Before you decide on your deductible, figure out how much your vehicle is worth to your insurance company. Weigh the value of the car against the cost of potential repairs. As the car’s value comes down, the chance of a total loss goes up—meaning it may not be worth buying optional coverages. For example, the Kansas Insurance Department recommends carrying only liability coverage on cars worth less than $3,000. But due to a current shortage of used vehicles, McBride pointed out that you might also want to consider how important your car is as a means of transportation. If you wouldn’t be able to get to school or work without your car, you may want to continue carrying comprehensive or collision coverage to pay for repairs.
What Does Your Emergency Fund Look Like?
Accepting a higher deductible in exchange for a lower annual premium is a common way to save money on insurance. But think carefully about how much you could pay out of pocket to repair a car. If you don’t have an emergency fund, could you come up with $500 on the spot for repairs? How about $2,000? If you’re not sure you could come up with the cash right away when you need it, you might prefer the peace of mind of a lower deductible.
What’s the Cost of Various Deductible Options?
According to McBride, there’s a rule of thumb: When considering deductibles, review any diminishing returns. If the cost of a policy with a $2,500 deductible isn’t much lower than a policy with a $1,000 deductible, the savings may not justify the potential challenge of having to come up with an extra $1,500 after an accident. You may be able to choose different deductibles for different types of coverage depending on how you assess your own risk or cost concerns. People often choose a lower deductible for comprehensive than collision insurance, McBride said, as comprehensive coverage is generally cheaper than collision.
Other Questions to Ask When Choosing Deductibles
While the three factors above are the most critical when choosing a deductible, you’ll want to ask these questions, too.
Is There a Required Minimum Deductible?
It depends on your insurer and state. Many coverage deductibles start at $250 or $500, but some insurers offer a $0 deductible option for certain coverages, and others may require higher-risk drivers to carry higher deductibles. For example, New York requires a minimum $50 deductible on comprehensive coverage and $100 on collision. If you’re leasing a car, the dealership or financial institution may specify a maximum deductible.
What Is Your Risk of Making a Claim?
You may be more likely to file a claim if you:
Have accidents on your recordDrive on busy roadsLive in a city where cars are commonly stolen
When choosing your deductible, consider the likelihood of having to pay it—perhaps even repeatedly.
Can You Use Other Insurance to Cover the Costs of Injuries?
In some states, you may be able to use health coverage to pay the costs of injuries due to car accidents instead of relying on auto insurance coverage, such as medical payments or PIP insurance. In this case, you might choose a higher deductible or a lower limit on those coverages, which would save you money.
Is a Vanishing Deductible a Good Option?
A vanishing deductible is an optional paid addition to your auto policy. Each program works a little differently, but generally, for each year you don’t file any claims, the insurer rewards you with a reduction in your deductible. For example, each claim-free year might save you $100 on your collision deductible. Vanishing deductibles may be a good fit for someone with a good driving history who wants a larger deductible, McBride said. The “vanishing” portion can help bring down the cost if you have to pay your deductible in the event of a claim. These policies tend to be less expensive than low-deductible plans and slightly more expensive than high-deductible plans.
Can the Deductible Be Waived?
Some states or insurance policies offer deductible waivers in certain circumstances, such as:
Total loss: Some insurers offer an optional total loss deductible waiver—you pay nothing if your car is totaled due to a covered loss. If you purchased a dealership’s gap protection coverage for your leased or financed car, it could pay your deductible in the event of a total loss. Windshield repair or replacement: Some insurers may waive the comprehensive deductible if you repair a cracked windshield rather than replacing it, while some states require insurers to replace your windshield without a deductible.
