Auto Insurance Deductible: Understanding The Average Cost

A car insurance deductible is the amount of money a driver has to pay upfront when they file a claim with their auto insurance provider. The average car insurance deductible is $500, but common deductible amounts also include $250, $1000, and $2000. The deductible amount is chosen when purchasing an auto insurance policy and affects insurance premiums. A higher deductible leads to lower premiums, while a lower deductible results in higher premiums. When choosing a deductible amount, it is important to consider budget constraints, personal tolerance for risk, driving history, and the value of the vehicle.

How does a car insurance deductible work?

A car insurance deductible is the amount of money the insurance company subtracts or deducts from your payment for certain covered incidents. It is the portion of the claim amount the insured is responsible for paying. When you buy a policy, you get to set your deductible along with your coverage limits.

When you have an accident that's covered under your policy, you'll be responsible for your deductible amount. The insurance company will pay the claim amount less the deductible. For example, if you have an accident that will cost $2,000 in repairs to your vehicle, and your deductible is $500, you’ll pay that amount out of pocket, and your insurance company will cover the remaining $1,500.

If the cost of repairs is less than your deductible, you should not file a claim. Your insurance company won’t pay for any repairs below the deductible. Moreover, filing a claim can cause your insurance premium to rise. For example, if you have an accident with repair costs totaling $400 and a $500 deductible, filing a claim wouldn’t make sense. You’d end up paying the entire cost yourself.

The deductible almost always applies to your policy’s collision and comprehensive coverage, which pays to repair damage to your car. Collision coverage pays the costs of any damage to your vehicle caused by a collision with an object when you are at fault. Comprehensive coverage protects your vehicle from theft and damage not caused by a collision.

The higher the deductible, the lower the annual, biannual or monthly insurance premiums may be because the consumer is assuming a portion of the total cost of a claim. Conversely, a low deductible will increase the premium payments.

When choosing a deductible amount, it's important to consider both your budget constraints and your personal tolerance for risk. If you have a limited budget for auto insurance, a higher deductible might be more desirable because if you don't have any claims, you won't have to pay as much out of pocket for your policy. If you have substantial savings, you might prefer a lower deductible and a slightly higher monthly payment to avoid having to come up with a larger sum in the event of an accident claim.

Choosing a deductible amount

Choosing a car insurance deductible can have serious financial implications, so it's important to weigh up the various options. The deductible is the amount you pay out of pocket before your insurance carrier starts paying for repairs. You will have to pay the deductible each time you file a claim.

Most drivers choose a $500 auto insurance deductible, but policies with higher deductibles cost less. There is a straightforward relationship between your insurance deductible and the rate you pay for your policy. Plans with lower deductibles usually have higher monthly premiums and vice versa.

Calculate the Cost Difference

When comparing auto insurance policies, look at the difference in price between plans with high and low deductibles. But remember that your total cost will vary based on whether you file a claim. It’s best to run a few different calculations and compare your out-of-pocket expenses if you file no claims, one claim, or multiple claims.

Are You Likely to File a Claim?

In general, drivers who are more likely to file an auto insurance claim will have lower total costs with a low-deductible car insurance plan. Conversely, drivers who don’t file a claim will typically save with a higher deductible plan. However, when you opt for a plan with a higher deductible, you’re betting that you won’t have an accident.

When considering the likelihood of filing a claim, ask yourself if you have a history of car accidents or engage in high-risk driving behaviours such as speeding or rush-hour driving.

Determine the Value of Your Car

Depending on where you live, most insurance companies will only pay up to the actual cash value of your vehicle if the insurer declares it a total loss. So, it’s generally better to have a lower deductible if your car’s not worth much.

Evaluate Your Cash Savings

If you do get into a car accident, you’ll have to pay your deductible before the insurance company starts chipping in for repairs.

If you don’t have savings or an emergency fund to cover a high deductible, it may be better to choose a low-deductible policy. The higher monthly bills for insurance premiums may be a better way to protect your finances if you have an accident.

What’s Your Tolerance for Risk?

Choosing a high-deductible plan is a gamble that you won’t have a car accident. If you do have an accident with a high-deductible policy, you’re still covered, but you’ll pay more out of pocket after the accident than if you had a low-deductible policy.

When do you pay the deductible?

You pay your deductible any time you file a claim under a coverage that carries a deductible. This is assuming that the damage is covered and costs more than your deductible amount. If your claim is approved, your insurance company will issue a payout minus your deductible. For example, if you have a claim approved for $5,000 and your deductible is $250, your insurance company will issue a check for $4,750.

You will also need to pay a deductible if you cause an accident but don't damage your car. In this case, your liability coverage would pay for the other driver's injuries and property damage, and you would pay your collision deductible.

If you are in an accident where another driver hits your car and causes damage, you won't need to pay your deductible. Instead, the at-fault driver's liability insurance will cover the cost of your repairs. Similarly, if you are not at fault in an accident with an uninsured driver, their insurance company can pay for your repairs, and you won't have to pay your deductible.

In some cases, you may not need to pay a deductible if your claim is covered under liability insurance, which covers injuries and property damage in accidents for which you are at fault. Additionally, some insurers offer a \"disappearing deductible\" program that reduces or waives your deductible for each violation- and claim-free policy period. Certain states may also waive your deductible for minor glass damage, such as chips or cracks in your windshield.

How does a deductible affect insurance premiums?

The deductible is the dollar amount "deducted" from an insured loss. In other words, it is the amount that a person must pay out of pocket for repairs or replacement after an accident. For example, if the total cost of repairs is $1,000, and your insurance company pays $800, you will be responsible for paying the remaining $200.

The higher the car insurance deductible, the cheaper the premiums will be, as the consumer is assuming more financial responsibility in the event of a claim. Conversely, a lower deductible will result in higher premium payments, as the insurer assumes more financial responsibility. For instance, increasing a deductible from $200 to $500 could reduce collision and comprehensive coverage costs by 15% to 30%%, according to an estimate from the Insurance Information Institute (III). Moving up to a $1,000 collision or comprehensive deductible might save you 40% or more.

However, it is important to note that the deductible amount will come out of the policyholder's pocket in the event of an at-fault accident, which could offset the premium savings. Therefore, when choosing a deductible, it is essential to consider your budget constraints and your personal tolerance for risk. If you have a limited budget for auto insurance, a higher deductible might be more desirable as it will lower your overall insurance rate. On the other hand, if you have substantial savings, you might prefer a lower deductible and slightly higher monthly payments to avoid a larger financial burden in the event of an accident claim.

Additionally, the age and condition of your vehicle play a role in the deductible decision. For example, if you have an old car worth $5000 or less, it may not make sense to have a high deductible, as you will likely save more on your premium cost with a lower deductible.

In summary, the choice between a higher or lower deductible depends on your financial situation, your comfort with risk, and the age and value of your vehicle. A higher deductible can lead to significant savings on premiums, but it also means higher out-of-pocket costs in the event of a claim. On the other hand, a lower deductible increases monthly payments but provides more financial protection in the event of an accident.

How to avoid paying a deductible

The average car insurance deductible is the average amount drivers pay upfront when they have to file a claim with their auto insurance providers. The average deductible is $500, with common amounts also including $250, $1000, and $2000.

Don't File a Claim

If your car is functional and has only cosmetic damage, you may choose not to file a claim until you have the money to pay the deductible. Filing a claim for a small amount could also lead to an increase in your insurance premium.

Check Your Policy

Some insurance companies do not require you to pay your deductible upfront. They will subtract your deductible from your claim money. Check your policy to see if this is the case, and ask your insurance agent if you are uncertain.

Work Out a Deal with Your Mechanic

In rare cases, a mechanic might be willing to waive your deductible completely. Although unlikely, it is worth asking your mechanic if this is an option. The mechanic could be making enough money off the repairs that they are willing to waive the deductible or let you make payments over a longer period. However, if you don't make the payments, the mechanic has the legal right to keep your vehicle until you pay off the remainder of the balance.

Get a Vanishing Deductible Policy

A vanishing deductible is a policy feature offered by some insurance companies that decreases your deductible over time as long as you remain violation-free, accident-free, and/or claim-free.

Drive Safely and Avoid Accidents

If you are in an accident where another driver is at fault, your costs will be covered by their liability insurance, which doesn't require you to pay anything out of pocket.

Adjust Your Deductible

If you can't afford your deductible, you can adjust your monthly premiums to lower your deductible to an affordable amount. While paying more each month may be inconvenient, it can save you a lot of trouble if you get into an accident.

It's important to remember that it's almost impossible to avoid paying your deductible in situations where it applies. Therefore, it's crucial to pick a deductible amount that you can afford to pay out of pocket when needed.

Frequently asked questions