Auto Deductible: Who Gets Paid And Why?

An auto insurance deductible is the amount of money you pay out of pocket when filing a claim for certain types of coverage. The deductible is subtracted from the insurance payout, and the insurer covers the remaining cost of repairs or replacements. For example, if you have a $500 deductible and your repairs cost $3,000, your insurer will pay $2,500. The deductible is chosen by the policyholder when purchasing an insurance policy and can be a flat rate or a percentage of the total amount of insurance on the policy. Typically, a larger deductible results in a lower premium, and vice versa.

Choosing a deductible amount

Choosing a car insurance deductible is a balancing act between risk and reward. A higher deductible means a lower insurance rate, but you'll pay more out of pocket if you need to file a claim. Conversely, a lower deductible means a higher insurance rate, but you'll pay less if you need to claim.

• Risk tolerance: Are you comfortable taking the risk that you won't need to file a claim? If so, a higher deductible might be a good choice. If you're more risk-averse, a lower deductible might be better.
• Value of your car: If your car is worth more, a higher deductible might make sense as the insurance company will pay out more if your car is totalled. For cheaper cars, a lower deductible is generally better.
• Savings: If you don't have savings or an emergency fund to cover a high deductible, a lower deductible policy might be a safer choice.
• Likelihood of filing a claim: If you're more likely to file a claim, a lower deductible will result in lower total costs. If you're a safe driver and don't anticipate needing to claim, a higher deductible can save you money.
• Cost difference: Compare the cost difference between high and low deductible policies. Consider how many claims you might file in a year and calculate your total costs with each type of policy.

Remember, there is no one-size-fits-all answer to choosing a deductible amount. It depends on your financial situation, risk tolerance, and the value of your vehicle. The most common deductible amount is $500, but you can usually choose anywhere between $100 and $2,500.

When to pay a deductible

The time to pay a deductible is when you file a claim under a coverage that carries a deductible. This is usually the case when you are at fault for an accident. If the accident was not your fault, the at-fault driver's liability insurance should cover the cost of repairs to your car. However, if you have comprehensive or collision coverage, you may still need to pay a deductible, depending on the specifics of your policy.

It's important to note that you don't pay a deductible if someone else files a claim against your liability coverage. Liability coverage pays for damages or injuries you cause to another person, and it doesn't have a deductible.

When you file a claim and it is approved, your insurance company will typically issue a payout minus your deductible. For example, if you have a $500 deductible and your claim is approved for $5,000, your insurance company will issue a check for $4,500.

It's also worth mentioning that some insurers offer a "disappearing deductible" program, where your deductible decreases or is waived if you go a certain amount of time without a claim. Additionally, in some states, your insurer may waive your deductible for minor glass damage, such as chips or cracks in your windshield.

When choosing a deductible, it's essential to consider your financial situation and comfort level with risk. A higher deductible will lower your insurance premium, but it will also increase your out-of-pocket costs if you need to file a claim. On the other hand, a lower deductible will result in higher premium payments but lower out-of-pocket expenses if an accident occurs.

Avoiding paying a deductible

A car insurance deductible is the amount of money you are responsible for paying before your insurance company covers the remaining costs of repairs or replacements. While it is almost impossible to avoid paying your deductible in situations where it applies, there are some options for reducing or delaying the payment. Here are some ways to avoid paying a car insurance deductible:

• Ask your mechanic to waive it: Although it is highly unlikely, your mechanic does have the ability to waive your deductible. By waiving the deductible, the mechanic would be agreeing to receive less than the full cost of the repairs.
• Get it waived for windshield repair or replacement: In some states, insurance companies are not allowed to require a deductible for windshield replacement claims. In other states, insurance companies are required to offer full glass coverage, which may waive or reduce your deductible for glass claims.
• Don't file the claim: If the cost to repair your vehicle is less than the deductible amount, it may not be worthwhile to file a claim. Filing a claim for a small amount could also lead to an increase in your insurance premium. Instead, you can save up the money and make the repairs when you can afford the deductible.
• Purchase a vanishing deductible policy: Some insurance companies offer a vanishing deductible feature, which decreases your deductible over time as long as you remain violation-free, accident-free, and/or claim-free. This option may be available for collision and comprehensive insurance deductibles.
• Drive safely and avoid accidents: If you are in an accident caused by another driver, their liability insurance will cover your costs without requiring you to pay anything out of pocket. However, if you choose to use your collision insurance or personal injury protection while fault is being determined, you will have to pay your deductible upfront.
• Choose a higher deductible: While this doesn't help you avoid paying the deductible, choosing a higher deductible will lower your monthly insurance premiums. This option is useful if you want to avoid paying high premiums and are confident you can afford the higher deductible in the event of an accident.
• Check your policy for upfront payment requirements: Some insurance companies do not require you to pay your deductible upfront. They will subtract the deductible amount from your claim money. For example, if your claim is valued at $10,000 and your deductible is $500, your insurance company will pay you $9,500, and you won't need to pay the deductible before having repairs done.

The average deductible

For health insurance, the average deductible for a single person in an employer-based plan is $1,735. However, this can vary significantly depending on the plan. For example, the average deductible for 2023 marketplace plans sold via HealthCare.gov ranged from $45 for Platinum plans to $7,481 for Bronze plans.

Home insurance deductibles can be a flat amount, such as $500 or $1,000, or a percentage based on the insured value of the home. For example, a policy with a 2% deductible on a home with an insured value of $200,000 would result in a deductible of $4,000.

It's important to note that deductibles are not one-size-fits-all and can be customized based on an individual's preferences and financial situation. A higher deductible typically leads to lower insurance rates, while a lower deductible results in higher rates.

How deductibles affect premiums

An auto insurance deductible is the amount of money you are responsible for paying before your insurance company covers the rest. For example, if you have a $500 deductible and $3,000 in damage from an accident, your insurer will pay $2,500 to repair your car, and you will be responsible for the remaining $500.

The deductible is applied to every car insurance claim you make. You can save on your monthly premium by choosing a higher deductible, but you will have higher out-of-pocket expenses if you get into an accident. For example, if you increase your deductible from $50 to $1,000, your premium could be reduced by 56% per year.

The relationship between deductibles and premiums can be summarised as follows:

• Higher deductible = lower premium
• Lower deductible = higher premium

This is because the deductible and premium represent a sharing of risk between you and your insurer. By choosing a higher deductible, you are taking on more of the financial risk yourself, which reduces the risk for your insurer and leads to a lower premium.

When choosing your deductible, it's important to consider your budget and the amount of risk you can tolerate. While a higher deductible can lower your premium, it may result in higher out-of-pocket expenses if your car needs repairs after an accident. On the other hand, a lower deductible may increase your premium, but it will reduce your financial burden in the event of an accident.

It's also worth noting that not all types of auto insurance have deductibles. Liability insurance, which covers bodily injury and property damage to others in an accident, typically does not have a deductible. Comprehensive, collision, uninsured/underinsured motorist, and personal injury protection coverages are the types of auto insurance that usually have deductibles.

Frequently asked questions