Understanding Collision Deductibles In Auto Insurance Policies

When you buy auto insurance, you can add optional collision coverage that covers damage to your car. A collision deductible is the amount you agree to pay out of pocket before your insurance company covers the rest of the costs. It is the amount you contribute toward the claim amount.

What does collision insurance cover?

Collision insurance is a type of coverage that pays for repairs or to replace your vehicle if it's involved in an accident with a stationary object or another vehicle. This includes single-vehicle accidents, such as hitting a guardrail or telephone pole, and collisions with other vehicles, even when your vehicle is parked. It also covers accidents caused by other drivers, if they don't have adequate insurance to cover the costs.

Collision insurance is not legally required in any US state, but it may be required by your lender if you're leasing or financing your vehicle. It is also not mandatory to have collision insurance if your vehicle is in storage for a long period of time, such as a boat or RV.

When you buy an auto insurance policy, you can add an optional collision coverage that can cover damage to your car. The collision deductible is the amount you agree to pay out of pocket to repair or replace your vehicle, while your insurance company covers the rest of the costs. Collision deductibles vary, and you should consider your financial situation and driving habits when choosing a deductible amount. A lower deductible means a higher insurance rate, while a higher deductible means a lower insurance rate but a higher out-of-pocket cost when you file a claim.

Collision insurance does not cover injuries to other drivers, theft, or accidental damage due to fire or extreme weather. These instances are typically covered by comprehensive insurance policies.

How does a deductible work on collision insurance?

When you buy an auto insurance policy, you can add an optional collision coverage that covers damage to your car. The collision deductible is the amount you agree to pay out of pocket to repair or replace your vehicle, while your insurance company covers the rest of the costs. Your collision deductible applies once your insurance company has approved your claim and issued a payout. The deductible is typically subtracted from the claim payout since it represents the amount you'll pay to repair or replace your vehicle.

For example, imagine you need $1,200 in repairs after hitting a telephone pole. If your deductible is $200, your insurance company will issue a payment to you or your chosen repair shop for $1,000, rather than $1,200. Collision deductibles vary widely — from as little as $100 to as much as $2,000. There's no one-size-fits-all answer for how much is the right amount. It depends on your financial situation, driving habits, and what kind of car owner you are.

A lower deductible means a higher car insurance rate. If you're OK with paying more on car insurance but concerned about large, unexpected repair bills, a lower deductible might be right for you. A higher deductible means a higher out-of-pocket cost when you file a collision claim, but you also get a lower car insurance rate. If you'd like to save money now and you're confident you could afford a larger, one-time expense if you have an accident, a higher deductible might be a better fit.

When you make a car insurance claim, the deductible on your policy will determine how much your share of the cost is. For example, if you have a deductible of $500 and the claim is for $1,700, you pay $500 and the insurance company pays $1,200. Some car insurance companies set deductibles in percentages instead of dollar amounts. Bear in mind that deductibles are only applied to your own car or property, and not the damage you cause. If you have a separate liability insurance cover, it will not have a deductible amount. In most cases, the company will pay the whole amount for the damages to the other party involved.

How to choose the right deductible amount

When choosing a collision deductible amount, it's important to consider your financial situation, risk tolerance, and the value of your car. Here are some detailed guidelines on how to choose the right deductible amount:

• Evaluate your financial situation: Consider how much you can afford to pay for repairs or replacements after a collision. If paying a large sum towards repairs would be challenging, opting for a lower deductible is advisable, even if it means slightly higher insurance premiums. Conversely, if you can comfortably cover more substantial one-time expenses, a higher deductible could be suitable, as it will lower your monthly insurance costs.
• Assess the value of your car: As your car depreciates, having a high collision deductible may become less advantageous. The actual cash value of your vehicle typically represents the maximum amount your insurance company will pay in a collision claim. Therefore, if your car's value is only slightly higher than your deductible, the potential claim payout will be significantly lower. In such cases, a lower deductible may be more appropriate.
• Understand the relationship between deductible and insurance rates: Generally, a lower deductible results in higher insurance rates, while a higher deductible leads to lower monthly insurance costs. Evaluate whether you prefer paying more upfront in the event of a claim or having a reduced monthly financial burden.
• Consider your risk tolerance: Evaluate your driving history and habits. If you are a confident driver with a record of accident-free driving, you may be comfortable opting for a higher deductible to reduce your insurance rates. On the other hand, if you are a new driver or have experienced accidents in the past, a lower deductible may provide peace of mind by lowering your out-of-pocket repair costs in the event of a collision.
• Evaluate potential repair costs: Consider the potential cost of repairs after a collision. If you choose a higher deductible, your insurance will primarily cover more expensive repairs affecting your vehicle's performance or safety. If you are willing to pay for minor repairs yourself, a higher deductible could be a suitable option.
• Compare different deductible amounts: Look at how different deductible amounts affect your insurance rates by obtaining quotes from insurance companies. Compare the costs of policies with varying deductible levels to make an informed decision.

When do you pay a car insurance deductible?

You pay a car insurance deductible any time you make a claim for your car insurance, provided the damage meets or exceeds the deductible amount. The deductible is an agreed-upon amount that you pay out of pocket before your insurer covers the remaining costs. For example, if you have a deductible of $500 and the claim is for $1,700, you pay $500 and the insurance company pays the remaining $1,200.

The type of claim you're filing and who, if anyone, was at fault are major factors in determining whether you have to pay a deductible. Collision and comprehensive coverages typically require a deductible, whereas liability and medical payments coverage do not. If another driver is at fault, their liability coverage should cover your injuries and vehicle damage, and you shouldn't have to pay anything. However, if there is a dispute over fault, the claims process is prolonged, or the other driver is uninsured, you can file a collision claim with your insurer and pay the deductible upfront. If your insurer can recover the deductible, they will reimburse you.

It's important to note that deductibles are paid on a per-claim basis. For example, if you have two separate incidents where your car is damaged, you will need to pay the deductible for each claim. Additionally, the deductible usually applies once your insurance company has approved your claim and issued a payout. The deductible is typically subtracted from the claim payout, as it represents the amount you pay to repair or replace your vehicle.

When choosing a deductible amount, consider how much you can afford to pay out of pocket for repairs and select a deductible that aligns with your financial situation. A lower deductible results in higher insurance rates, but you'll pay less out of pocket if an accident occurs. On the other hand, a higher deductible leads to lower insurance rates but higher out-of-pocket costs when filing a claim.

What is a good amount for a collision deductible?

When choosing a collision deductible, it is important to consider your financial situation, driving habits, and the kind of car owner you are. Collision deductibles can vary from as little as $100 to as much as $2,000, and there is no one-size-fits-all answer for the right amount.

A lower deductible often means a higher car insurance rate. If you are comfortable paying more for car insurance but are concerned about large, unexpected repair bills, a lower deductible may be the best option. This is especially true if you are a new driver or have had accidents in the past. A lower deductible can help lower your out-of-pocket repair costs, giving you peace of mind.

On the other hand, a higher deductible leads to a higher out-of-pocket cost when filing a collision claim, but it also results in a lower car insurance rate. If you are confident in your driving abilities and can afford a larger one-time expense in the event of an accident, a higher deductible could be a better fit. Additionally, if you are a confident driver with a long record of accident-free driving, a higher collision deductible may be suitable.

It is also important to consider the value of your car. As your car depreciates, a high collision deductible may not make financial sense. The actual cash value of your vehicle is typically the maximum amount your insurance company will pay for a collision claim. Therefore, if your car is only worth slightly more than your deductible, your potential claim payout will be significantly lower.

When choosing a collision deductible, assess your financial situation, driving history, and comfort level with risk. While there is no universal answer, selecting a deductible that aligns with these factors will help you make an informed decision.

Frequently asked questions