How Your Car Insurance Deductible Works
The Complete Guide to How Your Car Insurance Deductible Works
Your car insurance bill can consume a sizable portion of your monthly budget. When money is tight, increasing your car insurance deductible may help you save significantly on your premium — and give you more breathing room for other monthly expenses.
The amount of your deductible has a direct impact on your insurance costs. Raising your deductible will result in a lower premium. Paying a higher monthly insurance premium, on the other hand, does contribute to lowering your deductible.
According to a survey conducted by Quadrant Information Services and commissioned by Insuroma, increasing your deductible could save you up to 28 percent on your premium, depending on where you live.
A lower premium may sound appealing, but deciding how much of a deductible you're willing to pay for car insurance should be a personal, informed decision.
Based on market research, the following guide can assist you in determining the best deductible for car insurance to meet your specific needs and gain a better understanding of the meaning of a car insurance deductible.
Your Car Insurance Deductible Explained
So, what exactly does the term "deductible" in car insurance mean? A car insurance deductible is the amount of money you agree to pay out of pocket if you file an insurance claim for vehicle damage. The deductible is a set amount that your insurer requires you to pay before your coverage kicks in and pays the rest of the bill.
A standard car insurance policy includes liability, collision, and comprehensive coverage. When you are at fault in an accident, there is no deductible on your car insurance policy for the liability portion of your policy, which covers the costs of repairing any damage to another driver's vehicle. Almost all states require drivers to have liability insurance.
Car insurance deductibles for collision and comprehensive coverage are separate. Collision insurance pays for the costs of repairing your own car after a collision, whereas comprehensive insurance pays for damages caused by other types of incidents, such as a hail storm, a falling tree, or vandalism.
You might wonder, "How much is my car insurance deductible?" The average auto insurance deductible is $500, but deductibles typically range from $250 to $500 to $1,000. The highest car insurance deductibles can range from $2,000 to $2,500.
How Much Will You Save by Raising Your Deductible?
The amount you can save by raising your deductible varies greatly.
The Insuroma-commissioned survey examined the relationship between car insurance deductibles and premiums, as well as how much premiums decrease as consumers increase their deductibles from $250 to $500, and then from $500 to $1,000 or $2,000.
The amount you save by raising your deductible varies greatly depending on where you live.
- Raising your deductible from $250 to $500: According to the national average, increasing your deductible by $250 can save you 7%.
- Raising a deductible from $500 to $1,000: By increasing their deductible from $500 to $1,000, U.S. consumers can save an average of 9% on their premiums.
The biggest savings can be found in Massachusetts, where consumers can reduce their premiums by 17% if they make the change.
Other states with significant savings included South Dakota (14%), Wyoming (13%), Kansas (13%), and North Dakota (13%). (12 percent). Consumers in Michigan and Florida saved the least, with savings of only 4%.
- Raising a deductible from $500 to $2,000: The national average premium savings was 15%. However, the survey found that consumers in South Dakota can save a whopping 28 percent, while those in North Carolina can save only about 6 percent.
So, Should You Raise Your Auto Insurance Deductible or Not?
Is it better to have a higher or lower car insurance deductible?
When it comes to deciding how much your car insurance deductible should be, there are several factors to consider, in addition to where you live.
Here are a few things to think about when deciding whether high deductible car insurance is right for you:
Do you have enough cash?
Accepting a higher deductible can provide you with some additional wiggle room in your monthly expenses. However, it is not a viable strategy if you are unable to pay your car insurance deductible.
Before you commit to a higher deductible, make sure you have enough emergency funds set aside for auto repairs.
It doesn’t have to be all or nothing
Consider each deductible separately, and consider establishing separate deductibles for your car insurance comprehensive deductible and collision deductible.
For example, because it accounts for a smaller portion of the overall premium, you may want to consider lowering your comprehensive deductible. This means that raising the deductible will not save you much money.
Are you at risk?
If you are prone to car accidents, you may be better off with a lower deductible so that you do not have to pay as much out of pocket for filing multiple claims.
Even if your deductible does not reset annually, you must pay a deductible each time you file a claim.
Look out for “vanishing deductibles”
Some insurers will waive your deductible if you don't have an accident for a year. What you may not notice is that these "savings" are increasing the cost of your insurance.
Put the money aside.
Determine how long it will take for your annual insurance savings to equal your deductible. If it only takes a few months or a year, you can save enough to cover your premium and then begin saving the rest.
How to Avoid Paying a Car Insurance Deductible
Paying a deductible can entail forking over a sizable sum of money. If you are concerned that you will not be able to pay your deductible, you have a few options.
Negotiate with your mechanic
If you don't have enough money to pay your car insurance deductible, asking your repair shop for a payment plan may help you cover your costs in instalments. The auto shop may even be willing to waive your deductible.
Purchase a collision deductible waiver
A collision deductible waiver, or CDW, is an optional coverage that you can add to your collision policy to waive your deductible if you are involved in an accident caused by an uninsured driver.
Find out if you can get free glass repairs
For policyholders with comprehensive coverage, some insurers waive the deductible for windshield or broken window repairs. Because their laws require insurers to provide these repairs for free, Florida, Kentucky, and South Carolina are known as zero deductible states.
Ask for car insurance without a deductible
Choosing non-deductible car insurance means choosing coverage that does not require you to pay any money up front on an approved claim. If you don't usually save much money, it might be a good idea to look into this option so you don't run out of money if you need to file a claim.
However, keep in mind that having a zero car insurance deductible means you won't have to pay anything out of pocket if you file a claim to pay for damages to your vehicle. So, if your claim is for $3,000 in damages, your insurer will refund you the full amount rather than charging you a deductible.
Because lower deductibles result in higher insurance costs, the disadvantage of having no deductible is that you will pay a higher monthly premium.
Find out if you’re not at fault
You should not have to pay a car insurance deductible if you are not at fault, as long as the driver who hit you is covered. The other driver's insurance will cover the costs of repairing your car, and the driver will pay any deductible required by the insurer.
When Exactly Do You Have To Pay Your Car Insurance Deductible?
When determining how much your car insurance deductible should be, inquire with your insurer about their deductible collection process and how long it may take for you to receive a payout. In a few different scenarios, here's what you can usually expect.
After you file a claim
In order for you to receive a payout, your insurer must first approve the claim. Following the approval of your claim, your insurer will require you to pay your deductible. Once the amount of your damages exceeds your deductible, the insurer will pay for any additional repair costs.
If you don’t know who’s at fault
When you are involved in an accident with another vehicle, the insurance companies involved will conduct an investigation to determine who was at fault in order to determine who pays the car insurance deductible. If you have already paid your premium, your insurer will reimburse you if you were not at fault.
How to pay your car insurance deductible
Your car insurance deductible may be applied to the amount paid out by your insurer. That is, the insurer will deduct the amount you owe from your payout. If your vehicle is a total loss, your insurer will pay you the cash value minus the deductible.
When your car insurance deductible is due
Ideally, you should pay your car insurance deductible after your insurer has approved your claim. Many insurers do not require you to pay anything up front. It is worth noting that, if they do, most major insurers accept credit card payments, including deductible payments.
Car insurance deductible vs. out of pocket
Consider whether it is worth it to pay out of pocket instead of filing an insurance claim before filing one. In the event of a minor fender bender, your car insurance claim may be less than your deductible amount. Furthermore, adding a claim to your claims history may result in an increase in your auto insurance rates.
Methodology
Rates were calculated by Insuroma.com and Quadrant Information Services using data from the largest carriers in each state. The averages are based on a 45-year-old married female who drives 12,000 miles per year and has policy limits of $100,000 for injury liability for one person and $300,000 for all injuries. The following deductibles were assigned to collision and comprehensive coverage policies: $250, $500, $1000, and $2000. The fictitious driver has a spotless driving record and excellent credit.