What is a car insurance deductible? How much should it be?

The car insurance deductible is critical to your auto insurance policy and affects your rates. So what exactly is it, and how does a car insurance deductible work?

Your deductible is the amount you’ll pay for an accident before your insurance company pays the rest. Imagine you get in a car accident and you have a $500 deductible. You’ll pay $500 toward your repairs, and then your insurance will kick in. 

You choose the level of your deductible. If you choose a high deductible, your insurance policy will cost a little less. However, if you get in an accident, you’ll have to pay a bit more out of pocket for repairs. If you choose a low deductible, you won’t pay as much for repairs, but your insurance policy will cost a bit more each month. Read on to learn more about how car insurance deductibles work.

Are there different types of car insurance deductibles?

Yes, there are different deductibles for different kinds of coverage. Let’s look at how each type of auto insurance deductible works:

• Collision insurance deductible. Collision insurance covers damage to your car from accidents, regardless of who is at fault. Collision insurance deductibles usually range from about $100 to $1,000. 
• Comprehensive insurance deductible. Comprehensive coverage insures you against damage from natural disasters, theft, or other non-collision incidents. These deductibles are usually similar to collision deductibles.
• Personal injury protection (PIP) deductible. PIP covers medical expenses for you and other passengers. It’s unusual to have a deductible for PIP coverage.
• Uninsured motorist bodily injury (UMBI) coverage. UMBI covers your medical expenses if you’re hurt by a driver who doesn’t have insurance or whose insurance limits are not high enough. UMBI coverage typically does not have a deductible.
• Uninsured motorist property damage (UMPD) coverage. UMPD covers your property if it’s damaged by a driver who doesn’t have insurance or whose insurance limits are not high enough. UMPD deductibles typically range from $100 to $2,000.

When you set up your policy, you’ll need to choose your coverage levels and deductibles for any of these coverage types you choose. 

Should you have a high or low car insurance deductible?

It depends. There are pros and cons to each option. 

Advantages and Disadvantages of a Low Deductible

The advantage of a low deductible is just that — if you get in an accident, you don’t have to pay very much before your insurance policy kicks in. So a low deductible is cheaper if you actually have an accident. However, your monthly rate payments will be higher. 

Advantages and Disadvantages of a High Deductible

A higher car insurance deductible means exactly the opposite. Higher deductibles give you lower rates each month, so you pay less for your insurance policy. However, an accident would cost you more out of pocket.

Considerations for Choosing a Deductible

Think about how much car insurance deductible you’re comfortable paying out of pocket if you actually get in an accident. For example, consider:

• How much savings you have available for an unexpected accident
• Your car’s value
• If your car lease or loan requires a specific deductible

Also, think about how likely you are to get in an accident. If you’re a very safe driver and believe you will rarely need to make a claim, a higher deductible would cost you less each month. But if you expect to make some insurance claims, it may be better to pay a bit more each month for a lower deductible. 

Average Car Insurance Deductible

Ultimately, you choose your deductible based on what you can afford. Car and Driver reports that the average deductible tends to be around $500 and shows how the average cost of a six-month collision insurance policy changes with different deductibles:

• $250 per month with a $100 deductible
• $182 per month with a $250 deductible
• $129 per month with a $500 deductible
• $89 per month with a $1,000 deductible
• $84 per month with a $2,000 deductible

Note that veterans’ car insurance rates can sometimes be lower. Check out our top 5 tips for veterans looking for car insurance. 

The Claims Process and Your Deductible

So, when do you pay the deductible for car insurance?

Imagine you get in an accident for which the cost of repairs is $5,000. Your deductible is $500, so you’ll pay that when you’re at fault in an accident. When you file a claim, your insurance company would give you the $4,500 to pay for repairs, leaving you on the hook for the remaining $500 out of pocket.

For cheaper claims, for example, damages worth $450, your deductible might be higher than the cost of repairs. In that case, you might decide not to file a claim because you’d have to pay it all out of pocket anyway.

The Bottom Line: How do auto insurance deductibles work?

The definition of a car insurance deductible is how much you’ll pay out of pocket before your insurance kicks in. You can save on auto insurance if you take a higher deductible. If you want a lower deductible, you’ll have to pay more each month.

The right deductible level for you depends on many factors including how much savings you have and what you can afford in monthly payments.