Understanding Deductibles

Understanding how to choose the right auto insurance company can be tricky, especially for new drivers. However, car insurance policies follow a chain of logic that's fairly straightforward once you learn the basics.

On this page, we'll teach you the basics of car insurance deductibles.

What's a Deductible

Your deductible:

  • Is a set amount of money you'll pay towards a claim before your insurance provider covers the rest.
  • Only applies to the collision and comprehensive portions of your auto policy.

So, for example, if you find your car has been badly vandalized, the repairs your car needs due to the damage should be covered by your comprehensive coverage (if you bought this as part of your policy). However, before your car insurance kicks in, you will have to pay your deductible towards the repairs.

Deductible Limits

Car insurance companies offer different levels of deductibles. The most common are $500 and $1000 deductibles.

With a $500 deductible, you'd have to pay $500 towards a car insurance claim covered by comprehensive or collision coverage, before your insurance company pays out the rest.

When considering deductibles, remember that if the cost for your repairs are lower than your deductible, you will be paying for those repairs completely out of pocket.

If your policy includes a higher deductible, your monthly premiums will be lower. Another way to look at it is the lower your deductible to higher your premium. Everyone's budget is different, so it's important to find the right balance between deductible and premium payments specific to your finances.

Setting Your Auto Insurance Deductible

While choosing to pay a higher deductible will yield lower monthly premiums, there are still certain factors to consider:

  • An inexperienced driver authorized to use your vehicle is more likely to get in an accident; having a lower deductible may actually save you money in the long run.
  • If your car has a low value, you may not need a high deductible to cover the cost of repairs.
  • Expensive cars often require expensive repairs; make sure you're choosing a deductible that won't break the bank in the event you get into an accident.
  • Choose a deductible you can realistically pay off if you're in a car crash. Remember, you could have to pay that amount out-of-pocket on any given day.

Make sure you take the time to speak with your insurance agent about choosing the right deductible for your circumstances.

Keep Your Premiums Payable

There are many ways to reduce your auto insurance rates without sacrificing the coverage you need.

Just because your auto insurance policy has a low deductible doesn't mean your monthly payments have to be through the roof; other ways to reduce your premiums include:

  • Taking a defensive driving course.
  • Reducing coverage on older cars as their values decline.
  • Raising your credit score to get a lower rate on insurance.
  • Bundling insurance policies to get a discount.
  • Asking your insurance provider if they offer low-mileage discounts.
  • Researching anti-theft device discounts available through your insurance provider.

Each of the suggestions above aren't necessarily universal—be sure to check with your insurance provider to find out all the ways you can reduce your monthly premiums.