When creating a budget for your car insurance, there are two primary costs that you must keep in mind –your monthly premiums/rates and your deductibles. Keep in mind we are talking about auto insurance and not life insurance, where your deductibles are an annual recurring payment.
When it comes to insuring your car, a deductible can only be used when you file a collision claim for your vehicle in order to have your insurance cover the repairs. The deductible is a certain amount towards your auto repairs that you pay when filing a claim; then, your insurance company pays the rest of the balance.
Auto insurance deductibles work consistently through the different types of coverage you may purchase for your car. There are also some coverage types (like liability) that a deductible may not apply to. At the same time, you’re also able to customize your deductible amount to better suit your budget. This will also directly affect your premiums.
There are a couple of important things you should know before deciding how much you should set your deductible amount for. We’ll discuss what your deductibles can apply to and how they can impact your car insurance as a whole. Consider all that follows your personal guide to car insurance deductibles.
How does a car insurance deductible work?
Before talking about car insurance deductibles, let’s very briefly go over the different types of auto coverage. Naturally, there’s liability insurance which most states require their drivers to carry in the event they cause another driver bodily harm or your vehicle damage.
Car insurance deductibles won’t apply to damage that you caused to another driver. However, it does apply under a collision or comprehensive policy. Collision insurance covers you in the event another at-fault driver causes you bodily or vehicle damage. A comprehensive situation would be if your car is damaged by nature, crime, or while left unattended.
In the context of either of those accidents, you would contact your insurance company and file a claim. Once this claim is filed, you pay your deductible amount to your insurers. Then, they will cover the remaining balance towards your car’s repairs. Usually, they would mail the policyholder a check.
Other types of car insurance that may be valid for deductibles are personal injury protection (PIP) and uninsured/underinsured motorist coverage. These actually might be required in some states. Personal injury helps cover medical expenses for you and other passengers in your car at the time of the accident. Uninsured motorist coverage, as the name suggests, covers you should you be hit by a driver with no insurance to cover the damages. The main takeaway is that you can’t use deductibles with liability coverage.
How much do people pay for their car insurance deductibles and coverage?
An auto policyholder is able to set their deductible limit when taking out a new policy. Drivers can set their auto deductibles anywhere between $100 to $2,500. The national average is $500. There’s no wrong answer for how much a deductible can be.
For example, let’s say that you select $500 as your deductible amount. Your car was damaged in a collision or comprehensive situation resulting in you filing a claim for $5,000. The first thing you would do is pay your $500 deductible before your insurance company covers the remaining amount. In this case, it would be $4,500.
If your car is totaled in an accident, then your insurance company will pay out your vehicle’s current value minus your deductible after you pay it. Once you settle on the deductible amount of your choosing, you’ll review it with your insurance agent before making it final on the policy.
This is only the cost of your deductibles. Another couple of primary costs to keep in mind are your premiums and rates. The relationship between your premiums and deductibles is direct cause and effect. A higher deductible limit can result in lower premiums, while a lower deductible limit can increase your monthly premiums.
A specific example would be if you had a deductible as low as $100. Your monthly premium would be around $250, which is the average. Now, let’s say that you increase your deductible to $250. This would cause your monthly rates to drop to $182. Likewise, a deductible limit of $500 would result in lower monthly rates of $129.
Drivers with deductible limits of $1000 may pay less than $100 a month. However, you may notice that some changes may not affect your rates at all. Like, upping your deductible from $1,000 to $2,000 may only save you around 6%, while $500 to $1,000 can save you up to 40%. There are some deductibles that aren’t worth it.
When would you have to pay an auto insurance deductible?
What determines whether or not you’ll have to pay a deductible is the circumstance of the car damage and what insurance plan you use to cover it. At this point, we’ve mentioned that liability coverage doesn’t allow deductible use. However, what does allow you to pay deductibles before the insurance company covers the repair costs are:
- Collision damage - Liability coverage won’t allow a deductible for repairs to damages sustained in an accident that was the fault of another driver. Now, if you were at fault for the collision and damages, then damages to your car would be covered by your collision policy, which allows deductible use.
- Comprehensive damage - If no drivers are at fault or your car was damaged by nature or crime, then the damage would be covered by your comprehensive insurance. After filing the claim, you would be able to pay your deductible.
- No-fault states - In no-fault states, whoever caused the accident in the first place isn’t important and requires drivers to carry no-fault or personal protection insurance. This covers injuries and damage to your car. You pay the personal protection deductible when you file your claim.
- Damage exceeds policy limits - In a liability coverage situation, you don’t have to pay deductibles. The other driver would cover you. However, if your damage exceeds their policy limits, you may be able to pay a deductible towards it.
When would you not have to pay an auto insurance deductible?
Paying a deductible is necessary for two out of the three plans for full auto coverage –collision and comprehensive. But, there are more reasons than just insurance plan limits where you may want to pass up paying your deductible. Perhaps you don’t want the deductible amount subtracted from your insurance payout. If that’s the case, here are a couple of ways you can avoid paying your deductible if undesired:
- Liability coverage damage - As stressed throughout, if you are hit by another driver, then their liability insurance would cover the costs of your repairs and injuries. Paying a deductible isn’t necessary.
- Arrange payment plan - In a situation where you have to pay your deductible but don’t want to, you may be able to work out something with the mechanic. They would bill your insurance company sans the deductible amount while you set up a payment plan. The mechanic may hold your car until the deductible is paid. You may be able to use a credit card as a method of payment.
- Waive deductible - While it varies with insurance companies, you may be able to waive your deductible when you file a claim. The mechanic or auto shop will charge your insurance company without the deductible. This is far more common with lower deductibles like $250 and $500. A $1,000 deductible would be almost impossible to waive.
- Free repairs on glass - Glass components of your car like the windows and windshield are covered by some insurance companies. Instead of replacing them, they repair them, given that the damage isn’t too severe. You won’t have to pay a deductible.
What are some smart ways to choose a deductible amount?
When making the decision on what your deductible amount should be if you ever need to file a claim, there are several factors to think about. There are the typical car insurance factors like car make and model, along with your driving record. At the same time, it helps to think about what your personal budget allows. Here’s what you should consider when setting your deductible limit:
- How much you pay out of pocket - A deductible is paid by the policyholder out of pocket. Start by asking yourself if you’re able to pay $500 or $1,000 at any given moment since accidents do happen. If not, a lower deductible would be the smarter decision.
- The payout and premiums - With your deductible, think about how much your insurance company will payout after you file your claim. Would a higher monthly premium be worth the lower deductible, or vice versa?
- Are you at fault for a lot of accidents - If another driver (with insurance) is responsible for any damages, then you don’t have to pay the deductible since it’s the other driver’s insurance covering it. If you live in an area with a lot of unsafe drivers, then a high deductible with a low premium would be optimal.
- Your driving record - Do you classify yourself as a high-risk or low-risk driver based on your driving record or history. This ties into the number of claims you file with your insurer. If you file multiple claims in a short period of time, then you may want to opt for a lower deductible.
- Your car is owned or leased - Leasing companies often require more insurance for the vehicles they rent out. So, the monthly premiums may be a little much, but that means that the deductible is low. Most drivers of leased cars choose lower deductibles which offer more coverage.
- Separate plan deductibles - There isn’t just one type of deductible. Each plan, like comprehensive and collision, has its own deductible limit that you get to set. This is typically offered to good drivers. For example, they’re able to set their collision deductible lower or higher than their comprehensive deductible. This also enables you to offset certain premiums.
What is a vanishing deductible, and how does it work?
A vanishing deductible is a coverage option where the policyholders pay a fee for lower deductibles whenever a claim is filed. Some drivers with vanishing deductibles reported a $0 deductible when they filed a claim with their insurer. The fee is usually paid on a monthly basis, along with your premiums. You may be able to pay them quarterly. Your deductible (or lack thereof) may decrease after a year of safe driving and no claims. If a claim is ever filed, then the deductible resets.
Important things to remember about your Car Insurance and Deductible
Always remember that lower deductibles mean more auto coverage for you and your car. Naturally, you would want your insurer to cover the majority of your damages instead of paying for it out of pocket. At the same time, it’s directly proportional to your monthly rates.
There’s also a couple of ways you can save on those rates by shopping around or bundling other types of insurance with a certain company. While it is a good idea to lower your deductible if you want more coverage, it’s not the best course of action to raise them if you want your auto coverage to be cheaper.
When it comes to accidents and filing claims, then you’ll have to pay your deductible if you’re involved in an at-fault collision. Filing a collision claim is impossible without paying the deductible. Determining what you should set your coverage at involves looking at your driving history and vehicle type. A high-risk driver with a new or expensive car may have to pay high deductibles in their first year of coverage. Much like getting the best deal for car insurance, all it takes to get the best deductible is to be a safe driver that doesn’t file claims.
Call your insurance agent today and start doing the math on what car insurance deductible is right for you.
If you need dependable and affordable car insurance, contact Insurance Navy. We offer free car insurance quotes online to help drivers of all risk levels find good, cheap coverage. Give us a call today at 888-949-6289, or stop in at one of our many storefronts to get started. Our knowledgeable agents are always eager and ready to help.