Having a high car insurance deductible is often enticing because of the lower premium rates that come with it. However, any time you make a claim on your home or vehicle insurance, you’ll have to pay that deductible amount toward your insurance claim. How much will depend on the amount you and your insurance company agreed on when you first bought your car insurance policy.
That’s why it’s so important to understand how deductibles work. If you’ve recently discovered that you have a high car insurance deductible and are wondering whether to keep it that way, you’ve come to the right place. Let’s talk about the possible reasons why it’s high and whether you may just want to keep it that way.
Why is My Car Insurance Deductible so High: Frequently Asked Questions
What to know about your car insurance deductible?
A car insurance deductible is an amount you will pay out of pocket when you file a claim. You decide on this amount when buying a car insurance policy, generally between $250 and $2,000, that you agree to pay out of pocket should you be in a car accident where you need to file an insurance claim.
Essentially, your deductible is the part of your insurance claim that you are responsible for paying before your insurer will cover the rest. For the most part, the deductible just gets subtracted from the payment that your insurer issues after your claim is approved.
For example, if your car receives $4,500 worth of damage, and your deductible is $500, you will receive $4,000 for your claim payout.
What is the highest deductible for auto insurance?
Generally speaking, deductibles range from as low as $100 up to $2,000, with the average being $500.
With a low deductible, such as $250, a policyholder is more likely to file a claim for minor damage. For example, if you were to back into a pole and the repairs cost $500, you may be more inclined to file the claim because you would receive $250 from the insurer. As such, the insurance company will have you pay higher monthly premiums in order to balance out that increased payout risk.
At the same time, a higher deductible would allow insurance companies to offer lower premiums because they know the policyholder is less likely to file claims for minor scrapes and dents. Let’s use the same example but with a $2,000 deductible. You’re not going to file a claim for $500 damage because it’s less than your deductible, so your insurance won’t pay for it anyway.
Essentially, the higher your deductible, the lower your rate. With a good driving record and financial stability for a higher deductible, you can save hundreds of dollars on your car insurance.
What types of car insurance have a deductible?
Two of the most common types of coverage that include a deductible are comprehensive and collision insurance, each with its own deductible.
Your collision insurance covers damage due to an accident where you hit an object, such as another vehicle, a pole, or a trailer, or instances of a hit and run. Comprehensive insurance covers damage sustained due to unavoidable perils, such as fires, floods, vandalism, theft and falling objects. Basically, if you hit a tree, you need collision insurance, but if a tree hits you (falling due to strong winds, let’s say), then you need comprehensive coverage.
Policyholders can opt for having the same deductible for both collision and comprehensive coverage, but what some might not know is that you can have different deductibles for both. Typically, you have a smaller deductible for comprehensive (e.g. $250-$500) because comprehensive claims often involve less damage and, therefore, lower repair costs. On the other hand, for collision coverage, you may want a higher deductible (e.g. $500-$1,000) to help you save on your premiums if you are less likely to file a claim.
Why is my car deductible so high?
If you have a high car insurance deductible, it’s likely because you chose it when you first bought your car insurance policy.
If you’re not one to file claims often, having that higher deductible can certainly be worth it. But only if you can afford to pay a large sum of money unexpectedly. You need to ask yourself if you could comfortably afford to pay out $1,000 or $2,000 at a moment’s notice. If so, then having that higher deductible will save you money. However, if you cannot, it may be worth paying higher monthly premiums in order to help you avoid financial hardship down the road.
Another reason could be that when you first bought your policy, your vehicle was worth a lot more. Now that it has several years of wear and tear behind it, you may find that your high deductible is too close to the actual price of your vehicle. For example, if you agreed on a $2,000 deductible, but your car is only worth $3,500, you will only receive $1,500 if you suddenly need to replace it. But with a smaller deductible, such as $500, you would receive $3,000 toward replacing your car, which may be more financially feasible.
How can I lower my deductible?
Reach out to your insurance broker and ask them about decreasing your deductible. We recommend discussing your options with your broker first to see if decreasing is the best option for you. As mentioned, the most common deductible is $500, but some companies will let you go as low as $100. However, keep in mind that your monthly insurance payments will increase by lowering your deductible.
Do I always have to pay my deductible?
Every car insurance policy is different.
However, you will have to pay your deductible if you submit a claim for any of the following:
- An accident where you are entirely at fault
- An accident where you are partially at fault
- Theft or act of vandalism
On the other hand, if you are not at fault for an accident, your insurance provider will pay for damages but you will not be required to pay your deductible. However, if the at-fault diver is either not insured (e.g. hit and run), underinsured, or the fault is undetermined, you may need to submit a claim and pay your deductible.
What is the most convenient, a $500 or $1,000 deductible?
Frankly, it really depends on the size of your emergency fund. Having a higher deductible means you have to pay more after an accident, and since car accidents can happen at any time, you need to make sure you have enough money in savings to cover your deductible at all times.
For some, paying $500 toward an insurance claim is certainly more feasible than having to come up with $1,000. However, if you know you can easily afford to pay $1,000, then that higher deductible will help you to save money on your monthly premiums.
So, before you decide on your insurance deductibles, make sure you consider the following:
- How much you make a month
- What your monthly expenses are
- The size of your emergency fund
- The value of your vehicle
- How likely are you to file a claim
- How much the increased deductible saves you on your premium
