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Car insurance covers repair or replacement costs when you're involved in a car accident or another covered event. However, you may have to pay a deductible on the claim first. A car insurance deductible is the out-of-pocket money you must pay on an insurance claim before your coverage kicks in to pay the rest of the bill.
Your car insurance policy may require you to choose a deductible amount based on the type of coverage you have. The deductible amount you choose will influence the amount of your policy's premium.
Here's what you need to know about car insurance deductibles, how they work and whether you should choose a high or low deductible.
How Do Car Insurance Deductibles Work?
Car insurance deductibles work much like health insurance and home insurance deductibles. Say you're involved in a car accident, and the cost of repairs is $4,000. If you file a claim with your car insurer and your policy has a $500 deductible, you would pay $500 out of pocket, and your insurance company would foot the bill for the remaining $3,500.
- When deductibles apply: Generally, you'll pay a deductible when your insurance claim falls under coverage that has a deductible, such as collision or comprehensive coverage (more on this below).
- When deductibles don't apply: Deductibles don't apply to liability insurance coverage. If you're responsible for an accident where the other driver is hurt or sustains damage to their vehicle, your liability insurance coverage will pay the costs for their injuries and car repairs, and you won't pay a deductible.
As we'll see, there are other scenarios where you may need to pay a car insurance deductible.
The deductible amount you choose may impact your car insurance rates. Higher deductible amounts may lead to lower insurance premiums since you're assuming a larger percentage of the total cost on a potential claim. Conversely, lower deductibles can result in higher premiums because your insurer is at greater financial risk.
Types of Car Insurance Deductibles
Deductibles are common with most types of car insurance, though some policies may not require them. Here are the main types of car insurance deductibles:
1. Collision
If you finance your vehicle, your lender likely requires you to carry full coverage car insurance, including collision and comprehensive coverage. Collision insurance covers damage to your vehicle stemming from an accident with another car or an object while driving, and typically requires a deductible.
2. Comprehensive
Comprehensive coverage is sometimes called "other than" coverage because it covers non-collision damage to your vehicle, like theft or natural disasters. Most comprehensive policies require you to pay a deductible for covered events, but not always. For example, some car insurance policies offer a $0 deductible for glass claims, such as a cracked or chipped windshield. Deductibles for collision and comprehensive coverage can range from $0 to over $2,000.
3. Uninsured and Underinsured Motorist Coverage
Uninsured or underinsured motorist coverage is required in some states but not all. If you have this coverage and are in an accident caused by an uninsured driver, your uninsured or underinsured motorist insurance may cover injury and car damage costs. This type of insurance may include a deductible, which is typically $100 to $1,000 and varies by state.
4. Personal Injury Protection
Personal injury protection (PIP) insurance pays for injuries you suffer in a car accident, regardless of who is at fault. This coverage can be particularly helpful when you need to pay for injuries, treatments and lost wages and can't afford to wait on the insurance companies to determine who is at fault.
If you live in a no-fault car insurance state—meaning you must cover injury and property damage costs regardless of who is at fault—you're required to include personal injury protection in your policy. Some at-fault states also mandate PIP coverage. Depending on where you live, you may or may not have to pay a deductible, as some states don't allow them for PIP coverage.
When Do You Need to Pay a Car Insurance Deductible?
You generally need to pay a car insurance deductible on claims for damage to your own vehicle, such as through your collision or comprehensive coverage. Conversely, you don't have to pay deductibles on liability claims for injury or property damage you cause to others.
Depending on your policy and where you live, you may also need to pay a deductible when:
- You file a car insurance claim resulting from an accident caused by an uninsured or underinsured driver.
- You file a claim under your personal injury protection insurance for medical bills or lost wages in an accident.
- You use optional coverage like roadside assistance, which may require a deductible.
Learn more >> How to File a Car Insurance Claim
Should You Pick a High or Low Insurance Deductible?
Most auto insurance policies allow you to choose a deductible between $250 and $2,000, and some offer a $0 deductible. The most common amount policyholders choose is $500, according to Liberty Mutual.
Deciding whether to pay a high insurance deductible or a low deductible likely depends on your financial situation and personal preferences. Here are some factors to consider to help you determine the deductible amount that best suits you.
- How much could you reasonably afford if you needed to file a claim? Would a $1,000 deductible strain your budget? Choosing a higher deductible could lower your premiums, but if it's too high, it may strain your finances when you need to pay it.
- How would your premiums fit within your budget? A low deductible, like $250, makes it easier to financially handle a claim, although you'll probably pay higher premiums. Ask your auto insurer to quote premiums for different deductible amounts on your policy. That way, you can find the best balance of premium affordability and reasonable out-of-pocket costs if you have to file a claim.
- Does your lender require certain coverage and deductible amounts? Most auto financing companies require you to carry comprehensive and collision insurance on your vehicle, and some also impose specific deductible amounts. Some lenders may want you to carry a lower deductible to help make sure you can afford necessary car repairs and protect their investment.
- How much is your car worth? You may want to consider the age and condition of your vehicle when choosing a deductible amount, especially if you have an older car. If your car is only worth a few thousand dollars, you might consider dropping collision and comprehensive car insurance, as well as the deductibles that come with it.
What if I Can't Pay My Deductible?
If you can't pay the deductible after filing a car insurance claim, you may consider some options to resolve the issue, such as:
- Use your emergency savings. Paying for emergencies like car repairs after an accident is an ideal use of your emergency fund. After all, that's what it's for.
- Wait before filing a claim. You may hold off filing a claim until your next paycheck or until you can save up enough for the deductible.
- Get options from the repair shop. Some shops offer payment plans to customers, allowing them to begin repairs while you spread out your deductible costs with smaller payments.
- Cash out rental coverage. Your insurer may provide a cash-out option for your car rental coverage. If you can go without a vehicle while repairs are made, you could receive a payment instead of a rental car, which you could put toward your deductible.
Don't Forget About Your Credit
Many states allow insurers to use credit-based insurance scores when setting their premiums. These scores use your traditional credit scores and other criteria to determine how likely you are to file an insurance claim. As such, improving your credit scores may lead to savings.
Start by getting your credit report and credit score for free from Experian to see where your credit stands. Address any issues you find and take steps to improve your credit score if necessary.