Choosing The Right Auto Insurance Deductible: What's Best?

Choosing the right auto insurance deductible is a tricky business. It's a balancing act between how much you can afford to pay out of your own pocket if you need to make a claim and how much you can afford to pay for your insurance premium. A higher deductible means a lower premium, but you need to be able to afford to pay that higher amount in the event of a claim. A lower deductible means a higher premium, but you'll have lower out-of-pocket costs if you need to claim.

Choosing a high vs. low deductible

Most drivers choose a $500 auto insurance deductible, but policies with higher deductibles cost less. A high deductible generally means lower insurance premiums. Conversely, policies with lower deductibles have higher insurance premiums but lower out-of-pocket costs if you file a claim.

For example, if you have a $3,000 repair and a $1,000 auto insurance deductible, you would be responsible for paying $1,000. After paying the deductible, the insurance company would pay the remaining $2,000. However, if the repair costs less than the deductible, you will have to pay the entire bill.

When selecting a car insurance deductible, consider the following:

• Calculate the cost difference: Compare the difference in price between plans with high and low deductibles. Remember that your total cost will vary based on whether you file a claim.
• Are you likely to file a claim?: 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.
• Determine the value of your car: If your car is not worth much, it is generally better to have a lower deductible. If your car is worth more, a higher deductible makes more sense.
• Evaluate your cash savings: 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 to avoid a large, unexpected bill after 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, you’re still covered, but you’ll pay more out of pocket.

How much you can afford to pay out of pocket

When choosing a car insurance deductible, it's important to consider what you can afford to pay out of pocket if your car is damaged in an accident. Insurance professionals recommend choosing a deductible amount that you can comfortably afford to pay in the event of a claim. If your budget allows for a maximum out-of-pocket expense of $500, for example, you should not opt for a deductible higher than that amount.

The deductible is the amount you pay out of pocket before your insurance coverage kicks in. Deductibles typically range between $200 and $2,000, and the average car insurance deductible is $500.

The relationship between your insurance deductible and your insurance rate is fairly straightforward: plans with lower deductibles usually have higher monthly premiums, and vice versa. So, if you choose a plan with a higher deductible to get a lower insurance rate, you'll pay more out of pocket if you need to file a claim.

When selecting a deductible amount, it's also important to consider the value of your car. For example, if your car is only worth $1,500, setting a $1,000 deductible means your insurance company may only be responsible for up to $500 in damages to the vehicle.

Additionally, keep in mind that different coverage types may have different deductible options, and some coverage types, like liability, have no deductible.

The value of your car

The impact of your car's value on your premium also depends on your age. Older drivers are considered less of a risk, so the value of their car may have a greater impact on their premium. On the other hand, younger drivers are seen as riskier, so the value of their car may not be as significant in determining their premium.

Your car's value also determines which insurance group it falls into. Insurance groups are numbered 1 to 50, with group 1 vehicles generally being the cheapest to insure. The higher the value of your car, the higher the insurance group it will be placed in, which can result in higher premiums.

When choosing a deductible, consider the value of your car in relation to the deductible amount. If your car is worth $3,500 and you have a $1,500 deductible, the insurance company will only pay $2,000 in the event of a total loss. In this case, a lower deductible may be more appropriate. On the other hand, if your car is worth $10,000 and you have a $1,000 deductible, the insurance company will pay $9,000, making a higher deductible more sensible.

Additionally, if you have a car loan, your lender may require a certain deductible amount, so be sure to check before selecting your deductible. Ultimately, the best auto insurance deductible will depend on a balance between your car's value, your financial situation, and your comfort level with risk.

Vanishing deductibles

Vanishing deductible is an optional feature offered by some insurance companies. This feature rewards safe driving by reducing your deductible by a certain amount for each year you don't make a claim. The reward amount varies by company, with some offering $50, $100, or $150 off per year. The maximum reward is typically limited to $500, and only a handful of companies offer this feature, including Allstate, Liberty Mutual, Nationwide, and The Hartford.

Here's how it works: if you have a $500 deductible and remain accident-free for three years, you'll earn a $300 credit. So, if you have an accident in the fourth year, you only pay $200 towards your deductible, and your insurance covers the rest. Even if you have an accident, your reward usually resets to $100 instead of $0, and there's usually a waiting period before you receive the initial credit.

Vanishing deductible programs can be beneficial if you think getting into an accident is likely. However, they can be unnecessarily costly if you don't get into accidents. When considering this option, it's important to weigh the likelihood of getting into an accident and your financial situation.

When you have to pay a deductible

You have to pay a deductible any time you make a claim for your car insurance. The deductible is an agreed-upon amount that you have to pay out of pocket whenever you make an insurance claim before the insurer will cover the cost of damages. There's no annual deductible to meet either. The agreed-upon deductible applies every time you file a claim.

For example, if you have a $500 deductible, you'll have to pay that $500 out of pocket before your insurer will pay for any damages. There are some instances in which your deductible will cover the entire cost of the damages. Imagine you have a $1,000 deductible with your policy and you get in an accident that causes $900 worth of damage. Your deductible exceeds the cost of the damages, so you'll have to pay it all out of pocket.

You will have to pay the deductible each time you file a claim. For example, if you have a $3,000 repair and a $1,000 auto insurance deductible, you would be responsible for paying $1,000. After paying the deductible, the insurance company would pay the remaining $2,000. However, you’ll pay the entire bill if the repair costs less than the deductible.

Not all types of insurance coverage has a deductible attached to them. In general, deductibles apply to collision, comprehensive, uninsured/underinsured motorist, and personal injury protection. Liability insurance doesn't have deductibles, and personal injury protection doesn't often have a deductible, but it can in some states.

There are some instances in which you won't have to pay your deductible. For example, if the other driver is at fault, you may not have to pay your deductible or anything at all. You could have damages covered by their insurance or by your insurer should they decide to pursue reimbursement from the other driver. The cost of the damage and your deductible would be entirely covered for you.

Frequently asked questions