How Car Insurance Deductibles Work (and How to Choose One)

A car insurance deductible is the part of a claim you pay yourself before your insurance pays the rest. If you have a $1,500 collision claim and a $500 deductible, your insurer pays $1,000. Deductibles mostly apply to the coverages that protect your own car, collision and comprehensive, and a higher deductible usually means a lower premium.

A good rule of thumb is to choose the highest deductible you could comfortably pay on short notice.

How a Deductible Works in a Claim

The Texas Department of Insurance defines a deductible as “the amount of a claim that you must pay yourself.” It gives this example: “if you have a $1,500 collision claim and your policy has a $500 collision deductible, the insurance company will deduct $500 from your claim amount and pay you $1,000.”

Two things follow from that:

• Small claims may not pay anything. If the damage costs less than your deductible, your insurer doesn’t owe you a payment. RateFrog’s guide to paying for repairs out of pocket can help you decide whether a smaller claim is worth filing.
• You pay it every time. The NAIC’s consumer shopping tool says you’ll have to pay your deductible “any time you file a claim with your insurance company,” even if you’re not at fault for the damage.

Which Coverages Have a Deductible?

GEICO’s deductibles guide explains that if you’re at fault for damaging someone else’s car or property, “your liability insurance will typically cover their costs with no deductible applied.” It also says that “In most situations, you may choose the car insurance deductible amount for each coverage.”

When one crash involves two of your coverages, state rules can limit you to one deductible. In Texas, if you use both collision and uninsured motorist property damage coverage, state law says you choose one as the primary coverage and pay its deductible. You pay the second deductible only to the extent it’s higher.

Common Deductible Amounts

There’s no national standard. The Insurance Information Institute says, “Typically, deductibles are $500 or $1,000,” but insurers and states offer other options:

• New York’s Department of Financial Services lists collision and comprehensive options of $100, $200, $250, $500 and $1,000.
• Colorado’s Division of Insurance says you must be offered collision coverage with deductibles of $100 or $250, and you can choose higher ones.
• The Illinois Department of Insurance says deductibles “can range from $0 to $1,000.”

Comprehensive deductibles are often lower than collision deductibles. Oregon’s insurance regulator says, “Most auto policies have lower deductibles for comprehensive coverage than for collision coverage.”

How Your Deductible Affects Your Premium

A higher deductible lowers your premium, because you’re taking on more of each claim yourself. California’s Department of Insurance says, “You usually pay a lower premium if you choose a higher deductible.” Illinois goes further: “If you raise your deductible, you may be able to significantly lower the price of coverage.”

The savings show up in the coverages the deductible applies to, mainly collision and comprehensive. How much you save depends on your insurer, car and location, so ask for quotes at two or three deductible levels. The NAIC suggests asking your insurer directly: “How much can I save with a higher deductible?”

How to Choose a Deductible

Start with what you could pay tomorrow without trouble. The Insurance Information Institute advises, “Before choosing a higher deductible, be sure you have enough money set aside to pay it if you have a claim.” Illinois puts it simply: “Take the highest deductible you can afford.”

Then compare the savings with the extra risk. Here’s a hypothetical example. Say raising your collision deductible from $500 to $1,000 saves $100 a year. You’d pay $500 more out of pocket on each collision claim, so it would take five claim-free years to come out ahead on a single claim. If you rarely file claims and have savings, the higher deductible may be worth it. If a $1,000 bill would be hard to cover, a lower deductible may be the better fit.

A few other things can tip the decision:

• Your car’s value. On an older car, a high deductible can eat up much of what a claim would pay. At some point, dropping the coverage may make more sense. See RateFrog’s guide to collision vs. comprehensive coverage.
• Your loan or lease. If you finance or lease, check your contract for any deductible requirements before raising it.
• How often you’d use comprehensive. If hail, theft or animal strikes are common where you live, a lower comprehensive deductible may be worth paying for.

Deductibles When the Other Driver Is at Fault

You have two ways to get your car fixed, and only one involves your deductible:

• File with the other driver’s insurer. The Texas Department of Insurance says, “You don’t have to pay a deductible for claims against another driver’s insurance company.”
• File with your own insurer. You pay your deductible up front. Your insurer may then try to recover what it paid from the other driver’s insurer, a process called subrogation. The TDI’s guidance says, “If they get anything back, you might get your deductible reimbursed.”

Some states set rules for that recovery. In Washington, state regulations require insurers to include your deductible in their subrogation demands and to apply any recovery to your deductible first, less any share of fault that’s yours. California’s Department of Insurance describes an optional collision deductible waiver that pays your collision deductible when an at-fault uninsured driver damages your car.

Glass Deductibles

Some states don’t allow a deductible on glass claims under comprehensive coverage:

This isn’t a complete list, and a glass claim can still affect your premium even without a deductible. RateFrog’s guide to cracked windshield coverage explains more.

Deductibles vs. Coverage Limits

These two numbers work in opposite directions. Your deductible is your share of a covered claim on your own car. Your limit is the most your insurer pays. Your declarations page lists both, along with each coverage you carry. For how limits work, see RateFrog’s guide to liability limits.

Frequently Asked Questions

Do I Pay a Deductible If the Accident Wasn’t My Fault?

Only if you file the claim with your own insurer. If you file with the at-fault driver’s insurer, you don’t pay your deductible. If you use your own coverage, your insurer may recover the deductible from the other driver’s insurer later.

Does Liability Insurance Have a Deductible?

No. Liability coverage pays for damage and injuries you cause to others, and it typically doesn’t apply a deductible.

What Happens If the Damage Costs Less Than My Deductible?

Your insurer won’t pay anything on that claim. You’d pay for the repair yourself.

Is a $1,000 Deductible Better Than $500?

It depends on your savings and how much the higher deductible saves you. A $1,000 deductible lowers your premium, but you need to be able to pay that amount if you file a claim.

Sources

• NAIC: Consumer Shopping Tool for Auto Insurance (PDF)
• NAIC: Glossary of Insurance Terms
• Texas Department of Insurance: Auto Insurance Guide
• Texas Department of Insurance: How to Deal With the Other Driver’s Insurance
• California Department of Insurance: Automobile Insurance Guide
• New York Department of Financial Services: Auto Insurance
• Colorado Division of Insurance: Auto Insurance
• Illinois Department of Insurance: Auto Insurance Shopping Guide
• Oregon Division of Financial Regulation: Auto Insurance FAQs
• Insurance Information Institute: How Much Auto Coverage Do I Need?
• Insurance Information Institute: Nine Ways to Lower Your Auto Insurance Costs
• GEICO: Car Insurance Deductibles
• Texas Insurance Code section 1952.107
• Florida Statutes section 627.739
• New York Insurance Law section 5103
• Washington WAC 284-30-393