How Do Deductibles Work for Car Insurance?

By Jennifer Brozic 07/30/2021 12:00pm

When you buy car insurance, some types of coverage have a deductible, and others don’t. If you need to file a claim, you might have to pay a deductible before the insurance company picks up the tab. Here’s how it works.

Deductible vs. Premium: What’s the Difference?

When you purchase auto insurance, the price the company quotes you is for the premium. That’s the amount you pay to have coverage during the policy term — usually six or 12 months.

If you need to file a claim after an accident or mishap, you may have to pay a deductible. That’s the amount you pay before your insurance coverage kicks in, and it’s separate from your premium. After you pay the deductible, the insurance company covers the rest up to the policy limit.

For example, let’s say you’re in an accident that causes $3,000 worth of damage to your car. If you have a $500 deductible, you’ll pay $500 for repairs, and the insurance company will pay the remaining $2,500.

When Does My Car Insurance Deductible Apply?

Whether you have to pay a deductible typically depends on two major factors — the type of claim you’re filing and who (if anyone) was at fault.

Coverage Type

When you buy a standard auto insurance policy, there are five main types of coverage you can include. Some have a deductible, and some don’t. If you file a claim under your collision or comprehensive coverage, you’ll have to pay a deductible.

But liability and medical payments coverage don’t have a deductible. “The insurance company doesn’t want to discourage a client from filing a claim after they caused injuries to someone or damaged someone else’s property,” says David Miller, vice president of The Plexus Groupe, a national insurance brokerage based in Illinois.

Depending on where you live, you may or may not have to pay a deductible if you file a personal injury protection (PIP) or uninsured motorist property damage claim. Different states have different rules.

Who’s at Fault

If you’re in an accident and another driver is at fault, their liability coverage should pay for your injuries and vehicle damage. And you shouldn’t have to pay anything. But it doesn’t always work out that way.

If there’s a dispute over who was at fault, you get hit by an uninsured driver, or the claims process drags on, you can file a collision claim with your insurer. “You’ll be out your deductible up front, but your [insurance company] will try to collect it on the back end,” Miller said.

If your insurer can recover the deductible, they’ll reimburse you for the amount you paid.

Do I Pay my Car Insurance Deductible Per Claim or Per Year?

Deductibles are paid on a per-claim basis. For example, let’s say an uninsured driver hits you. After the accident, you file a collision claim with your insurer to get your car repaired. You pay the deductible, get your reimbursement check from the insurance company, and take your car to the body shop. By the time they’re finished with it, you can barely tell you had an accident.

Unfortunately, a few weeks later, a hurricane ravages your town, uprooting a tree that lands on your car. You file a comprehensive claim with the insurance company to fix the damage. Even though you just paid a deductible for the accident you were in, you need to pay a deductible again for the new claim.

How to Choose a Car Insurance Deductible

When you buy auto insurance, if you maintain coverage that has a deductible, you must select your deductible(s) when you purchase the policy. Deductibles typically range from $100 to $2,500. “A low deductible encourages people to file claims. [Insurance companies] set their rates to discourage you from filing a claim,” Miller said.

Increasing your deductible can help reduce your premium. But the amount you save by increasing your deductible typically decreases the higher it gets. According to Miller, you’ll see the biggest savings on your collision premium when you raise your deductible from $250 to $500. But you won’t see much of a difference if you increase it from $500 to $1,000.

“If I’m doubling your deductible from $500 to $1,000 and [you’re] only saving a few dollars, it’s probably not worth it,” he said.

Miller said he sometimes recommends a lower deductible for comprehensive coverage because it typically costs less than collision. And it covers glass breakage.

When choosing a deductible, it’s important to think about how much you can pay out of pocket for repairs. And select a deductible amount that’s in line with what you can afford.

Can My Deductible Be Waived?

If your windshield cracks or breaks and you carry comprehensive car insurance coverage, here’s what you need to know. If you have full glass coverage, it’s possible to file a claim to repair your windshield damage, and some insurers may waive your deductible if you have full glass coverage. But you pay an extra premium for this coverage.

In another instance, if you’re driving a Ford Explorer or Acura MDX, your insurer probably won’t waive your deductible. But if you drive a Bentley or Ferrari, you might be in luck. Insurance companies that work with high net-worth individuals often have policies that waive deductibles for high-end cars if they’re totaled or stolen.