Guide to Auto Insurance Deductibles

“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. These incidents include auto theft, auto 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. Most auto policies’ deductibles range from $0 to $2,000. The third-party car insurance won’t have a deductible, since it is the liability portion of the policy.

Understanding how a deductible works is important for a smooth auto insurance claims process. Since the deductible is your portion of the repair bill, you must pay this amount for a covered claim. While the general definition says that the deductible must be paid prior to the insurance company paying for damages, this isn’t always how it plays out in practice.

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.

This is why it’s so important to choose a deductible that you can afford to pay in a claim. If you choose something higher to save on premiums, you could find yourself in a financial bind where you can’t get your car back.

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

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, and a higher deductible can save you money on premiums.

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 of savings to premium might be the $1,000 deductible.

We can’t stress this enough: 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 is elective coverage. This coverage isn’t necessary if you don’t plan on repairing your car after an accident (or feel that you won’t have an at-fault accident).

If you opt for the coverage, you can elect to have a zero deductible. This is the most expensive option, since you are transferring all financial responsibility to the insurance company in the event of an accident. Some insurance companies reward good drivers with vanishing deductibles, the amount systematically going down to zero for each year of good driving without an accident. Read more about collision coverage and comprehensive coverage to see if it’s a fit for you.

You don’t pay a deductible in every type of claim. When you have an accident that is someone else’s fault, their insurance should pay 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 to process the claim. 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. If it is not successful, you’ll be out for your deductible. While this situation is not ideal, the good news is that the claim will not affect your insurance premiums.

Premiums rise when you have at-fault accidents or moving violations. Not every claim affects your car insurance premium, and a not-at-fault accident would not.

It will be a similar situation if you get hit by an uninsured motorist, unless you have opted for uninsured and underinsured motorist coverage. If you have uninsured motorist coverage, it will work like liability insurance and cover the damages to your car as if it were the other party’s insurance. In this situation, 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 when it comes to 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.

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 can be a little tricky to choose a deductible if you have an older used car with auto insurance. Older cars may be harder to fix because parts may be limited. A shortage of parts can make it more expensive to fix a car. The parts shortage plus the age of the car make it more likely to be totaled in a claim.

Insurance companies will total a car if the cost of repairs comes close to or exceeds the value of the car. Remember that insurance companies will make a business decision to ensure the lowest output on their part in a claim. In many cases, the decision could be totaling a car.

So is it worth having a deductible on an older car? Let’s look at an example.

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.

At the end of the day, each policyholder will need to evaluate whether a deductible on their older car is worth it. You don’t need collision or comprehensive coverage. These are elective coverages rather than the minimum coverage your state requires — given you live outside of New Hampshire and Virginia, the only two states that don’t require auto insurance. So you could just save the money and start saving for a new car.

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

You can choose a high deductible or a low deductible. In fact, you can even choose a zero-dollar deductible. It’s a choice between saving money on your premium and saving on the amount you’d have to come up with in a claim. You can split the deductible, meaning you select one amount for collision claims and a different amount for comprehensive claims. A common split deductible is $500/$250, meaning $500 for collision and $250 for comprehensive.

At some point in your decision on the deductible, the value of the car will come into play. If the car is not worth much, even a small claim can lead to the insurance company totaling the car. Some policyholders don’t feel getting a small check for a totaled car is worth paying the premium for a deductible, while others do. Each person must evaluate their unique situation and talk to their insurance agent to sift through the data.

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.