What is a deductible in car insurance?

Car insurance is complicated. Whether you’re a new driver or have been behind the wheel for years, it can be daunting to wade through insurance terminology like "deductible."

Your car insurance deductible affects the cost of your insurance, so it’s important that you choose one carefully. The deductible that’s right for you depends on your individual circumstances.

Here’s everything you need to know about auto insurance deductibles.

What is a deductible in car insurance?

If you need to file a claim with your car insurance provider after an accident, or when your car is otherwise damaged, there’s a good chance you’ll need to pay a deductible. So, how does a deductible work?

A deductible is the amount of money you pay out of pocket before your insurance coverage kicks in and starts paying for the costs of your loss. You’re liable for your deductible amount every time you file a claim.

Say you get in a car accident and your car needs $8,000 worth of repairs — if your deductible is $500, you’ll need to pay that $500 before the insurance company pays the remaining $7,500 in damages. If your car is totaled, you’ll receive a check from the insurance company for the value of the vehicle, minus your deductible amount.

Your monthly insurance premium payment is separate from your deductible. Not all insurance coverages require a deductible, but if yours does, you’ll choose the amount. Your deductible will affect your monthly insurance payment — the lower your deductible, the higher your car insurance premium.

When shopping for quotes from car insurance companies, experiment with how different deductibles will impact your monthly payments.

These are the general guidelines:

• Higher deductible = Lower premiums with higher out-of-pocket costs
• Lower deductible = Higher premiums with lower out-of-pocket costs

What types of car insurance have a deductible?

Car insurance policies can include different types of coverage that serve varying purposes, and you can choose to be covered by some or all of them. Some of these coverage options require deductibles and some don’t, so it’s worth noting what deductibles you’ll be required to pay. State law generally determines whether or not a deductible is required.

These coverage types require a deductible.

• Collision coverage — This covers you if your vehicle collides with another vehicle or object and you need to pay for repairs. Collision deductibles are standard but vary by insurer.
• Comprehensive coverage — If your vehicle is damaged by an event such as fire, a falling object hitting your windshield or vandalism, you'll file a comprehensive coverage insurance claim. Deductibles are generally required for this type of coverage and also vary by insurer.

These types of insurance coverage don’t always require a deductible.

• Liability insurance — Liability coverage protects you financially if you’re found responsible for the death or injury of another person because of a car accident. It can also help cover repairs to the other party’s damaged property.
• Personal injury protection — This type of coverage pays for medical bills, funeral expenses, lost wages and other expenses incurred by an accident, regardless of fault. Deductibles aren’t necessarily required for personal injury protection.
• Uninsured/underinsured motorist property damage coverage — If the other driver in an accident is at fault but they aren’t insured or don’t have enough coverage to pay for your property damage, this type of coverage will come to the rescue. Deductibles are sometimes required for this coverage, but not always, and requirements vary by state.

What’s the average car insurance deductible?

While your car insurance deductible can vary greatly depending on many factors, including how much you want to pay, car insurance deductibles typically range from $100 to $2,500. The most common deductible amount is $500, but remember, there’s no one-size-fits-all option when choosing a deductible. Your budget, your confidence in your driving abilities and how often you drive your car are all factors when you make your decision.

How does my deductible affect my insurance premiums?

It may be tempting to choose a higher deductible to keep your monthly costs down, but that’s not always the right move. Think carefully when selecting your deductible: If you go too high and get in an accident, the cost of filing a claim may be financially devastating. On the other hand, if you choose a very low deductible, you’ll be responsible for a high monthly payment.

While no two insurance companies have the same deductible-to-premium ratio, generally, increasing a deductible from $200 to $500 could lower your collision or comprehensive premium costs by 15% to 30%, according to Nationwide.

When do I have to pay my car insurance deductible?

You’ll need to pay your deductible any time you file a claim, assuming that coverage carries a deductible. If the insurance company approves your claim, then the deductible will be applied to your payout.

You usually don’t actually need to pay for your deductible by writing a check or making a payment to your insurance company. Instead, the insurance company subtracts your deductible amount from your claim's approved payout. This means if you have a claim approved for $10,000 and your deductible is $500, you’ll receive a payout of $9,500.

What factors should I consider when choosing a deductible?

When choosing a deductible, you’ll need to consider multiple factors, including your budget. Spend some time calculating how much you can afford to pay for a deductible and how much you’ll save on your monthly premiums by opting for a higher one.

Ask yourself these questions when choosing a deductible amount.

• Do you have an emergency fund? A solid emergency fund could make a high deductible possible, which can help you save on monthly premium payments. You need this buffer in case the worst happens, but if you’re a safe driver or don’t drive often, using an emergency fund to cover any accidents may be an option.
• Can you afford your deductible if you get in an accident? This is an important question when considering what deductible to choose. If you get in an accident, can you afford the deductible or would you struggle to pay it?
• What is the value of your car? Taking on a high deductible may not make much sense if it represents a large portion of the car’s value. If your car is only worth a few thousand dollars, consider a lower deductible.