How Does a Car Insurance Deductible Work?

A car insurance deductible is a preset amount of money you have to pay toward a claim before your insurance chips in a single dollar.
Drew Gula
By Drew Gula 
Edited by Lacie Glover

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Chances are you’ve had to deal with a deductible at some point. It may have been related to a medical bill, a home repair or a car accident. But because insurance works differently in each situation, you can’t always apply the rules for one kind of deductible to other insurance types.

Let’s look specifically at how a car insurance deductible works and what you need to know, before you have to deal with repairs after an accident.

How does a car insurance deductible work?

Your deductible is the amount of money you have to spend to cover an insurance claim before your policy pays anything.

Let's say you have a $500 collision insurance deductible and submit a $3,000 claim for car repairs after an accident you caused. You will have to pay your $500 deductible upfront. Once you pay that amount, your provider pays the rest of the $2,500 claim.

The good news is that you may be able to raise or lower your deductibles. In most situations, a higher deductible means you'll have a lower premium for your policy, while choosing a lower deductible means you'll pay more for your premium.

It all comes down to what works best for you: Pay more out of pocket after an accident but have a cheaper premium, or pay less out of pocket but have a more expensive premium. Either way, you'll have to pay your deductible when you submit a claim. The benefit of adjusting your deductibles is that you can decide how much you'll pay for the coverage you need.

You may also have different deductible amounts for separate types of coverage on your policy. This determines the amount you’ll have to pay depending on the details of each accident/claim. (For example, it’s possible to have a $500 deductible for comprehensive coverage but a $1,000 deductible for collision coverage.)

When do I have to pay an auto insurance deductible?

This is one of those “sometimes but not always” answers that can make insurance tricky. But the easiest way to remember is that if your policy includes a type of insurance that has a deductible, you will have to pay that deductible every time you file a claim.

For example, most insurance providers require deductibles for comprehensive and collision coverage because they cover damage to your vehicle in a variety of situations.

Collision coverage pays for repairing your vehicle even if you cause the accident. Meanwhile, comprehensive coverage deals with damage from a non-accident event, like a tornado, hitting a deer or vandalism.

>> MORE: Types of car insurance and what they cover

However, these two types of coverage are usually optional. They aren’t required by any state, but you may be required to add them to your policy if you are financing or leasing a vehicle.

Uninsured motorist coverage often includes a deductible, as well. This type of insurance pays for expenses caused by another driver without insurance. Similarly, underinsured motorist coverage covers expenses that cost more than the other driver’s insurance coverage limits.

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There may be a situation where the cost of repairs is less than your deductible. In these cases, you wouldn’t want to file a claim because your insurance premium could increase even if you weren’t at fault for the accident.

What is a good deductible for car insurance?

There isn’t really such a thing as a good deductible or a bad one because every situation is different. So a more beneficial question might be: How much could you afford to pay out of pocket if you caused an accident?

Your deductible determines how much you have to pay before your insurance kicks in. In some cases, it may be easier to handle a higher premium each month than to come up with a $1,000 deductible after an accident.

However, let’s say you want extra coverage for your brand-new car, so you sign up for comprehensive insurance. The average auto insurance deductible is $500, but you could also select amounts like $250, $1,000 or $2,000.

One benefit of choosing a higher deductible may be a lower premium. If you are willing to take on more financial responsibility if an accident occurs, providers will often decrease the price of your policy, which means you’ll make lower payments.

But while this can seem like an easy way to decrease your insurance premium, it’s not always the best option. Just because you’re a careful driver doesn’t mean you’re accident-proof — they’re called “accidents,” after all. And if you aren’t able to pay your deductible and make the necessary repairs, then you could find yourself facing financial or even legal trouble.

You’ll pay your deductible every time you file a claim to pay for car repairs after an accident you caused. Sometimes a lower deductible with a higher premium is worth it because it means you won’t have to pay $500, $1,000 or even $2,000 out of pocket. That’s a decision only you can make.

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