Understanding Car Insurance Deductible

When you buy an auto insurance policy, you can add an optional collision and comprehensive 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 covered costs.

Comprehensive coverage protects your car from damage caused by unexpected events. Your comprehensive deductible is defined as the amount you pay out of pocket to repair or replace your vehicle after your claim is approved; this means that the remaining approved costs are covered by your insurance company (up to the actual cash value of your vehicle). The comprehensive deductible amount you choose determines your out-of-pocket costs for repairs and impacts your car insurance rate.

How collision & comprehensive deductibles work

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 hit a telephone pole and need $1,200 in repairs. 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.

Your comprehensive deductible is the amount you agree to pay to repair or replace your vehicle when you file an approved comprehensive claim. For example, imagine you have a $400 comprehensive deductible, and you file a claim for $1,000 worth of damage after a tree falls on your car. If your claim is approved, you'll pay $400 out of pocket and the insurance company will pay the remaining $600.

Note that if the repair costs are less than your comprehensive deductible, you would pay for the repairs yourself because your insurer only covers damage that exceeds your deductible amount.

How much should your collision & comprehensive deductible be?

Deductibles vary widely — from as little as $100 to as much as $2,000. Unfortunately, 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. To start, you should consider how much you could afford to pay out of pocket if you get in a car accident, and how your car insurance rate may change.

Lower deductible

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.

Higher deductible

A higher deductible means a higher out-of-pocket cost when you file a 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.

What else should I consider when choosing my collision & comprehensive deductible?

How much your car is worth

As your car depreciates, having a high collision deductible may make less sense. Your vehicle's actual cash value is typically the maximum amount your insurance company will pay for a collision claim. So if your car is only worth a bit more than your deductible, your potential claim payout is significantly lower.

For instance, if you have a car valued at $2,000 and a $1,500 deductible, the most your collision coverage can pay out is $500 — the value of your vehicle minus your deductible. On a car worth $10,000 with the same deductible, you might get as much as $8,500.

How much coverage you want

With a lower deductible, your collision coverage may be more likely to cover lower-cost repairs, such as cosmetic damage like dings or dents. With a higher deductible, your insurance typically covers more expensive repairs that affect your vehicle's performance or safety. If you're not worried about paying for minor repairs yourself, then a higher deductible might be the right choice for you.

How much risk you're comfortable with

If you're a confident driver with a long record of accident-free driving, you may opt for a higher collision deductible. You have protection against larger repair bills, but your car insurance rate will be slightly lower.

On the other hand, if you're a newer driver or if you've had accidents in the past, then a lower collision deductible may make sense so you can lower your out-of-pocket repair costs. Your rate will be higher, but if you anticipate filing a claim, it may be worth the peace of mind knowing you may not have to pay as much for repairs.

Your car's value

The maximum amount that your comprehensive coverage will pay out is equal to your vehicle's value, so having a deductible that's close to your car's actual cash value isn't likely to be cost-effective.

For example, if your car is worth $2,200 and you select a $2,000 comprehensive deductible, the most your coverage will pay out is $200 — the difference between the car's value and your deductible.

Common hazards in your area

Comprehensive only covers damage from events outside of your control like natural disasters, vandalism, falling objects, collisions with wildlife, and similar perils. If you live in an area where these hazards are common, you may benefit more from a low comprehensive deductible because you may have a higher likelihood of filing a comprehensive claim. If your area isn't prone to these perils, a higher comprehensive deductible may make more sense.

Want to quote your vehicle with collision and comprehensive coverage? Click here to request a free quote or give us a call! We'll be able to provide you with different options that best fit your financial needs.