How car insurance deductibles work

A car accident can change your life in an instant.

Ideally, car accident damages can be limited to property and not people. But that still leaves you needing to make sense of the questions, “how does a car insurance deductible work?” and “how to file an insurance claim?” Take a breath, VIU by HUB is here to help.

Your car insurance deductible is the amount you’ve agreed to pay out of pocket before your insurance company kicks in. Let’s say you had a fender bender and your damages were $400 and your deductible is $500. In this case, you would be fully responsible for the repair cost because it’s lower than your deductible. Now, let’s say you have a newer car with a backup camera and that same fender bender’s damages are $1,500. In that case, you’ll pay your $500 deductible, and your insurance company would pay the other $1,000.

How car insurance deductibles work

Car insurance deductibles only come into play when you’re filing a claim. When you need to make an auto insurance claim, your first step is to contact your insurance company. They are experienced with these and can walk you through the claim process. They’ll likely have an adjuster evaluate your damage and estimate the repair costs. This is where your deductible is important. Your insurance company will expect you to pay that amount toward the repairs before they pay the balance.

Understanding auto insurance deductibles can help you to choose the right amount for you. You know that your deductible is the amount you’re responsible for in the event of an insurance claim. That might make you think that a lower deductible is better. However, your deductible helps to determine your premium and if you go too low on your deductible, you could have a very expensive premium. On the other hand, keeping a high deductible to have a low premium can make an accident a very expensive surprise. There is a delicate balance between the amounts and only you can make the decision that’s right for you. Consider your risk tolerance and finances when making this decision.

Here's an example:

Sarah chooses a $500 deductible and $150/month premium.

Justin chooses a $1,000 deductible and $100/month premium.

Let’s assume they have identical accidents, causing $3,000 in damages. Sarah would pay $500 to the mechanic and Justin would pay $1,000. In the year of their accidents, Sarah will have paid a total of $2,300 and Justin will have paid $2,200. However, while Justin’s total expense is lower, the bulk of it was a surprise lump sum payment. Sarah’s expenses were slightly higher but were more predictable. This is why we say that your risk tolerance and access to quick money is an important consideration when choosing a deductible.

Types of coverage and deductibles

What we typically call an auto insurance policy is actually multiple types of coverage grouped together. Each of these can have its own deductible structure.

• Collision coverage – This applies when your vehicle collides with another object. This could be another car or a stationary object. Collision coverage deductibles are typically $500 to $1,000.
• Comprehensive coverage – This protects against non-collision incidents. Think: theft, vandalism or natural disasters. These deductibles also tend to range from $500 to $1,000.
• Liability coverage – This coverage is for other people in an accident where you’re at fault. There’s usually not a deductible for this coverage.
• Optional coverage – Optional coverages like uninsured/underinsured motorist protection may have their own deductibles so be sure to read your policy.

If you’re unsure of what your deductibles are, check your policy or contact the VIU by HUB Advisory Team. They can help you to understand your coverage and deductibles.

Factors to consider when choosing a deductible

Selecting the right car insurance deductible for your policy requires careful consideration. Keep these things in mind when choosing yours.

• Budget – Your financial situation should be a primary factor in determining your deductible. Consider how much you can comfortably afford to pay out of pocket in the event of an accident.
• Driving habits – Your driving habits and record can also influence your deductible choice. Safe drivers with a lower risk of accidents may benefit from selecting a higher deductible. Your safe driving reduces the likelihood of accidents and claims, meaning that you’re less likely to have to use your deductible.
• Car value – Drivers of older cars with lower market values may opt for a higher deductible. The potential savings on premiums outweigh the risk of higher out-of-pocket costs for repairs. Drivers of newer or more expensive vehicles may prefer a lower deductible for better protection in the event of an accident.
• Risk tolerance – How comfortable are you with unexpected bills? A higher deductible can save you money on your premium payments, but it increases the amount you’ll have to pay if you need to make a claim.
• Claim frequency – If you rarely file claims, choosing a higher deductible can minimize premium costs without much risk. However, if you frequently find yourself needing to use your insurance coverage, a lower deductible may provide greater financial security.
• Get quotes – Talk to multiple insurance providers with different deductible options. Comparing costs and coverage details can help you identify the most suitable deductible for your needs and budget. Better yet, work with a brokerage like VIU by HUB to get quotes from over 50 insurance companies at once.

Common myths about car insurance deductibles

Car insurance deductibles are commonly misunderstood. Some of the most common myths that we hear, and the truth behind them are included here.

Myth 1: A higher deductible automatically means less coverage

Many people believe that higher deductibles equal less coverage. In reality, your deductible is the portion you are required to pay before your insurance coverage kicks in. While your deductible is connected to your premium, it is not connected to your coverage.

Myth 2: You can't change your deductible after purchasing a policy

Contrary to popular belief, you're not locked into your deductible choice for the duration of your policy. Many insurance providers offer the flexibility to adjust your deductible, although there may be limitations or restrictions. Keep in mind that changing your deductible can impact your premium costs and may require approval from your insurer.

Myth 3: Your deductible applies to all types of car insurance

While deductibles are a standard feature of collision and comprehensive coverage, they typically do not apply to liability coverage. Liability coverage is designed to protect you against claims made by others for damages or injuries resulting from an accident for which you're at fault. Since liability coverage doesn't involve repairing your vehicle, deductibles are not applicable in this context.

Additional considerations

Waivable deductible for windshield repair

Some insurers offer waivers for minor windshield repairs, allowing you to get them fixed without having to pay your deductible. These waivers can be particularly beneficial for minor damages that don't warrant filing a full insurance claim.

Gap coverage and deductibles

Gap coverage is designed to bridge the gap between what you owe on your car loan or lease and the actual cash value of your vehicle in the event of a total loss. If your car is totaled and you have a high deductible, gap coverage can help cover the difference.

Review your deductible regularly

Periodically review your deductible to keep it aligned with your current financial situation and the value of your vehicle. As your budget or car's value changes over time, adjusting your deductible accordingly can help you maintain the right balance between premium costs and out-of-pocket expenses.

If you’re getting insurance quotes or reviewing your current coverage to look for improvements, it’s worth your time to explore how your deductible impacts your coverage and premium. The VIU by HUB Advisory Team is here to help. Our licensed agents can explain your current policy and what updates can be made so that your policy is the best fit for your life.