How much deductible can you afford and how does it affect insurance claims?
Choosing a car insurance policy can be a complicated and overwhelming task, made no easier by the use of technical jargon and special insurance terms. One term in particular that causes confusion for many drivers is a deductible, the amount you’ll pay before you get coverage. Compare car insurance deductibles to decide how much you should choose and when you’ll have to pay it.
What is a car insurance deductible?
The car insurance deductible is the amount you will be required to pay when you make a claim on your policy. In other words, it’s the amount you agree to contribute toward the cost of a claim, with the insurer covering the remaining amount.
For example, if your policy has a $500 deductible and you make a claim for $3,000 worth of damage to your vehicle, you’ll cover the first $500 of the repair costs and the insurer will foot the bill for the remaining $2,500.
However, the amount of deductible payable varies depending on a number of factors. Not only does the deductible differ according to the policy you select, but you may be able to adjust the amount higher or lower to vary your premium amount.
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Why do insurers include a deductible on their policies?
The purpose of car insurance deductibles is to reduce the number of small claims insurers are required to pay out. If deductibles didn’t exist, we’d all be able to file claims for every minor little bump, scratch and dent that our cars suffer.
While this may seem like a wonderful idea on the surface, in reality, it would cause the cost of car insurance policies to skyrocket, and the premiums could leave a much bigger dent in your bank balance.
But by getting policyholders to agree to pay the first part of each claim themselves, insurers are able to prevent claims for minor repairs and therefore keep car insurance premiums down. This, in turn, means that you can fall back on car insurance in those situations where you really need the financial protection it provides.
Can I avoid paying a car insurance deductible?
While you will most likely have to contribute some amount toward the cost of a claim, it’s possible in some cases to avoid paying your car insurance deductible. Here are a few situations where you may be able to avoid paying a deductible:
- If the insurer allows you to waive the deductible altogether by paying substantially higher premiums than would normally apply.
- If you were not at fault and you can meet any conditions outlined in your policy — for example, providing the name, address and registration number of the person who was at fault.
- If you choose not to have the damage to your car repaired, or you choose to only have part of the damage repaired. Remember that you will pay the deductible directly to the business that is repairing your car, not your insurance company.
Whether or not you can avoid paying a deductible will once again depend on the terms and conditions of your policy. Check the fine print closely to find out if you’ll have to dip into your own pocket every time you make a claim.
How much is a deductible?
You can typically choose from the following deductible limits:
- $250
- $500
- $1,000
- $1,500
- $2,000
How do I pay a deductible?
How you pay your deductible depends on the insurer and the nature of your claim. When you file a claim, your insurance company will advise you whether the deductible:
- Will be deducted from any amount paid to you
- Must be paid to the insurer
- Must be paid to the vehicle repairer when you collect your car
When do I not have to pay a deductible?
The circumstances when you do not have to pay a car insurance deductible generally depend on the insurer and your individual policy. If your provider agrees to waive all deductibles when you pay an additional premium, for example, then you won’t have to worry about contributing toward the cost of the claim. Just keep in mind that the additional premium you’ll be required to pay will probably be fairly substantial.
If your car is drivable, you can choose to wait until you’ve saved up the deductible. You will need to file the claim right away, but you don’t have to have the damage repaired right away. Your insurance provider will issue a check for the damages to your car minus your deductible, before you’ve covered the deductible. Your financial responsibility — the deductible — is paid directly to the auto repair shop, not your insurance company.
One big caveat: You’ll need to practice self-discipline and hold on to the insurance money until you are able to have your car repaired. This might be too much temptation for some drivers.
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Do I need to pay a car insurance deductible if I’m not at fault?
The other main situation where you may be able to avoid forking out to pay a car insurance deductible is when you are not at fault for the incident being claimed. This is not always the case, as some policies require you to pay a deductible regardless of who was at fault.
In other situations, you can avoid paying the deductible if you were not at fault and you can meet the conditions outlined by the insurer. For example:
- If the insurer agrees that you were not at fault in any way. It can be quite difficult to definitively prove that you did not contribute to an accident in some way, so establishing your innocence may not be as easy as you might think.
- If you can provide the name, address and registration number of the at-fault driver. If this condition applies, problems may arise if the at-fault driver flees the scene of the accident, refuses to supply their details, or if you forget to gather their information in the stressful aftermath of an accident.
- If the insurer recovers its costs from the at-fault driver. It could take months or years for this condition to be met, or it may never be met if the other driver is uninsured, can’t be found or refuses to pay the necessary amount.
So what can you do if you think you’re being unfairly asked to pay a deductible? You could refuse to pay the deductible and dispute it, but this means the insurer may not repair your car or may simply deduct the amount from any benefit you receive.
Another option is to pay the deductible now, ensuring that your claim is processed quickly and you can get back on the road, and dispute the matter at a later date. However, it’s essential to seek independent legal advice before deciding on the best approach.
How much should I be paying for a car insurance deductible?
The cost of your car insurance deductible is determined when you take out coverage. There’s generally a standard deductible that applies, but you can usually choose to adjust this to a higher level and receive lower premiums as a result. On the other hand, you may wish to lower the deductible payable at claims time, which will of course lead to a higher premium.
The simplest way to find out the deductible that applies to your policy is to check the certificate of insurance. You can also find a guide to the excesses imposed by your insurer by calling customer service for more details.
As a general guide, standard deductibles tend to range from around $250 up to $1,000, but could be higher or lower depending on your circumstances.
How to choose your car insurance deductible
Your insurance deductible plays a huge role in how claims will be addressed if your car is damaged due to an accident or any other covered incident. In some countries, there are different types of insurance deductibles that may apply, including collision, glass and windshield and more. These different types of deductibles can complicate things and drive up the cost of your claim, and fortunately they don’t apply in the US.
However, most providers allow you to choose a deductible that suits your financial situation and amount of risk you want to take on. Your deductible will determine how much you pay in monthly premiums and your personal costs of repairing your vehicle after an incident, so it’s important to choose wisely. Here are a few factors you should consider when choosing a deductible for your policy:
Personal savings
If you’ve got a large emergency fund or a big chunk of savings, you may want to consider a higher deductible. Doing so, you may be able to decrease your monthly payments at the cost of a steeper up front fee if you were to file a claim. If you can afford the out of pocket expense, you may be able to save more money in the long run.
Value of your vehicle
You may want to adjust your deductible according to the cost of your vehicle. On a high-end or brand new vehicle, repairs are likely to be more expensive, so a higher deductible may make more sense. However, if you’re driving an older vehicle that costs less to repair, it doesn’t make much sense to pay more for a deductible than the costs of potential repairs.
Vanishing deductible
Some providers and policies offer the option of a vanishing deductible, also called a disappearing deductible. A vanishing deductible is exactly what it sounds like; after a period of time (usually 1 year) without any accidents or claims, your deductible will decrease by a given amount (typically $100). For example, if you have a $500 vanishing deductible and go two years without an accident, your deductible will only be $300 if you file a claim after two years of accident-free driving.
But keep in mind that this feature is not free, and your deductible will reset to the original higher amount once you make a claim. Find out how much your provider charges for a vanishing deductible and do the math to figure out if the cost is worth it.
Monthly premium payments
As you may know, a higher deductible may make for lower monthly premiums, providing an opportunity to save money in the long run. However, each provider’s approach to monthly premiums differs, making it difficult to tell whether or not increase your deductible is worth it. For example, if you’re only receiving a $5 discount on your monthly premiums in exchange for a $500 increase in deductible, you may want to reconsider.
Level of risk
If you’re an inexperienced driver or live in an area with a high number of collisions, driving may pose a higher risk to your vehicle. If there’s a higher likelihood of you getting into an accident or having your car damaged, it may be a good idea to opt for a lower deductible in case something happens. While your premiums may be slightly higher, you’ll be paying less out of pocket when you file a claim.
Type of coverage
Some providers may give you the option to adjust your deductible depending on the type of insurance policy on your vehicle. For example, if you live in a densely populated area like a big city, it might be a good idea to carry a lower deductible on comprehensive insurance since it covers damage due to theft and vandalism. Since accidents are relatively less likely, you could offset the cost with a higher deductible on collision insurance.
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Can I adjust my car insurance deductible?
Yes, you can. When you apply for car insurance coverage, many insurers will give you the option to choose your deductible. You can:
- Choose the standard deductible amount quoted.
- Increase your deductible – doing so will lower your premium.
- Reduce your deductible – this will result in a higher premium.
Should I change my car insurance deductible?
You’re the only person who can answer that question. It’s really up to you, your budget and which option you think will provide the best value for your money.
For example, while lowering your deductible will reduce the financial strain when you file a claim, it means you’ll need to pay more to purchase coverage in the first place. On the other hand, increasing your deductible makes coverage more affordable but could put pressure on your budget if you ever need to file a claim.
If you want to save some cash, call your insurer to find out how much your premiums will drop if you raise your deductible. That might help you make the decision.
Bottom line
Your deductible is an important factor when considering your total premium cost. Whether you decide to increase your deductible, lower it or keep it at the same level, make sure that you’ll be able to afford to pay premiums whenever they’re due, and that the amount payable when you need to claim won’t put you under significant financial strain. If you’re not happy with your current deductible and premium, compare other car insurance providers to find the best balance for you.
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