What is an auto insurance deductible and how does it work?

Understanding auto insurance is essential to ensuring that you can obtain the right coverage at an affordable price. One aspect of auto insurance that we know can be confusing is the auto insurance deductible.

So what is a car insurance deductible, and how does a car insurance deductible work? Furthermore, when do you pay the deductible for car insurance?

Continue reading this article for an explanation of the insurance deductible, to find out if there are insurance deductibles for different types of coverage, and to learn more about how to select the right deductible amount.

Before we jump into this overview of auto insurance deductibles, why not enter your ZIP code into our tool to obtain free auto insurance quotes from top companies so you can compare and save?

What is an insurance deductible, and how does it work?

An auto insurance deductible is the amount of money you’ll be expected to pay — if your vehicle is damaged in a car accident — before your insurance coverage will apply.

For example, let’s say you have a $500 deductible. If you are involved in a covered incident, and the damages total $2,000, you’ll have to pay $500 out of pocket. The remaining $1,500 will be covered by your insurance. Often, your insurance company will determine the total payout amount and cut a check for that number, minus your deductible.

Most, if not all, auto insurance policies include a deductible. Chances are that you have a deductible on your policy, and it’s important to know your deductible amount. You need to know what you could owe, as well as whether or not it makes sense to file a claim, based on comparing your deductible to the total cost of repairs.

Read more: What is an auto insurance claim?

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Do you have a single deductible or a different one for each type of coverage?

Do deductibles vary by coverage type? For example, is there a unique collision deductible? Different coverage types have different deductible requirements.

For example, in South Carolina, drivers must carry uninsured motorist coverage as a part of the minimum insurance requirement to drive legally. If you only purchase the minimum amount of uninsured motorist coverage, it will accompany a $200 deductible that you’ll need to pay before your insurance company’s coverage will apply.

Examine the table below for a summary of which coverage types typically include a deductible.

The deductible amounts listed in the table are estimated based on available data. You’ll need to speak with your insurance company to determine the exact minimum and maximum deductible amounts for your coverage. The deductible amount that you select will likely impact your insurance rates. Keep reading to find out how.

Does your insurance deductible affect your insurance rates?

The higher your deductible, the lower your insurance rates because with a higher deductible, your insurance company will have a lower payout after an incident. Additionally, your insurance company may perceive you as a low-risk driver — if you choose a higher deductible — due to your risk transfer.

If you’re in a covered incident and have a higher deductible, you’ll pay a higher out-of-pocket cost. Your insurance company perceives this as a sign that you’ll drive more carefully in order to avoid this additional expense.

How do you select a deductible?

If you’re wondering, “How do I select my deductible?” it depends on your circumstances. As mentioned above, average deductibles can be as high as $2,000, depending on the coverage type.

You’ll need to work with your insurance company to identify the right deductible amount for your coverage. However, it’s also important to consider your budget. If you select a higher deductible to maintain lower rates, will you be able to afford the deductible if you’re in an accident?

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When are you required to pay your deductible?

Typically, you’ll be required to pay your deductible if you file a claim for any covered incident, if it’s under coverage that includes a deductible. As stated previously, you may need to pay your deductible first before you receive your payout. Otherwise, your insurance company may subtract the deductible amount from the payout.

Are there ways to avoid paying your deductible?

In most cases, you’ll have to pay your deductible. However, you can ask the repair shop to consider waiving the cost of your deductible. And for certain types of damage, your insurance company may waive the cost of your deductible. For example, this is common for windshield and other glass repair claims.

What happens if you aren’t able to pay your deductible?

If you cannot pay your deductible, you may not be able to file a claim, particularly if the terms of your insurance policy demand your deductible payment up front before you receive your insurance payout.

If you need the repairs immediately, you could consider taking out a loan to pay your deductible. If the repairs aren’t catastrophic, you may be able to wait to file a claim until you’ve saved up to pay your deductible.

Additionally, suppose the estimated cost of repairs is less than your deductible. In that case, you might consider avoiding filing a claim altogether and simply paying out of pocket once you have saved the funds.

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Auto Insurance Deductible: The Bottom Line

An auto insurance deductible is an out-of-pocket cost that you’re responsible for before receiving a payout from your insurance company. In most cases, either you’ll need to pay your deductible first — before receiving a payout — or your insurance company will subtract the deductible amount from the payout before sending it to you.

You can work with your insurance company to set your deductible amount based on what you can afford and the estimated effect on your rates. Typically, the higher the deductible, the lower your rates will be.

Beyond choosing an auto insurance deductible level that you can afford and that lowers your rates, you can also save by comparison shopping. Enter your ZIP code into the tool on this page to acquire free auto insurance quotes and get started today.

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