How do car insurance deductibles work?
Putting it plainly: an insurance deductible is the amount of money that must be paid by the insured person before an insurance company pays a claim. In the event of a claim costing $800, if your deductible is $500, you only pay $500 for the claim and your insurance company pays $300.
The cost of your deductible has an inverse relationship to the cost of your car insurance premium. This means that if you have a lower deductible, you’ll pay a higher premium. And a higher deductible means you’ll pay a lower premium.
If you have policy riders that require a deductible, you will need to decide which amount is right for you. These and the amount of your deductible(s) should be listed on the declaration page of your car insurance policy. Be sure to note if there are specific limits or qualifications.
When do you pay a deductible?
The general rule of them for when you pay a deductible is: when they pay for your car, you pay for your car. Generally speaking, you’re on the hook for payment if you’re at-fault or when there is no fault determined for the claim—either because both drivers were found to be of equal fault or due to an “act of God.”
When do you not pay a deductible?
When another driver is the reason your car needs repairs, you do not have to pay… unless they’re an uninsured motorist or it’s an insurance claim related to a hit and run.
You can also choose not to repair your vehicle. In that case, your insurance company may pay the cost of the repair minus the deductible, meaning you’d keep the rest. Please note: if your car is financed, your lender may require repairs.
However, there may be some situations when this is a better deal depending on the cost and extent of the damage. For example, your car may sustain just under enough damage to be declared totaled. If you own your vehicle outright, you might take the cost of repair and put it toward buying a different car.
What types of insurance coverage require a deductible?
Understanding the costs and benefits of coverage that requires a deductible begins with knowing the coverage types and options associated with them. Depending on your needs and the requirements of your states, you may or may not purchase the following riders.
Comprehensive coverage covers damages caused to your vehicle due to what are called “acts of God.” This includes hail, fire, extreme winds, and vandalism. Though refer to your insurance agent or policy documents for a complete list of covered damages.
What’s not covered is damage to your vehicle done by another car (for example, a hit and run when you’re parked in a parking lot).
For more information, check out our complete guide to comprehensive coverage and our guide to understanding comprehensive versus collision.
Collision coverage pays for damages caused by a collision above your collision deductible. It doesn’t matter who is at fault, though if you’re not at fault, you will pay a lot less for the claim. This is also the type of coverage that helps you during a hit-and-run accident.
For more information, check out our complete guide to collision insurance and our guide to understanding comprehensive versus collision .
Personal Injury Protection (PIP)
Personal Injury Protection or PIP covers bodily injury of you and any of your immediate family members while occupying a car. It is required in only 16 states and optional in seven. If a deductible is not available on your policy, bear in mind you will be on the hook for 20 percent of at-fault damages.
For more information, check out our in-depth article on Personal Injury Protection (PIP).
Different car insurance companies will have different costs for coverage. You can always test out these and other options using a car insurance quotes comparison site like Insurify.
With Insurify, you can compare auto insurance rates with different coverage options and deductible amounts within minutes. Simply use the dropdown menus on your quotes page and hit “update quotes” to get even more options.
A note on Vanishing Deductibles
The policy rider known as a Vanishing Deductible offers the benefit of lowering your deductible on an annual basis. However, the cost of this type of program is not free. If it costs $5 per month, as it does with Nationwide, that means you spend $60 a year for the rider.
That means that if—and only if—you get into an accident, you’ve saved yourself a total of $40 out of pocket. This may pay off for you, but if you run a low risk of being in an accident, it’s likely a losing gamble.