By Madeline Klein on November 16, 2018.
We know, we know, car insurance deductibles aren’t the most exciting thing to talk about. But we’re here to help un-complicate car insurance, so let’s chat for a few minutes about how car insurance deductibles work. We’ll make it pretty painless, we promise!
After you’ve been in an accident and your car or another driver’s car needs repairs, you’ll want to know exactly how much you’re on the hook for and what your insurance company will be paying. Understanding your auto insurance deductible now, before an accident, will help get you some peace of mind so you can be better prepared if the time comes to use your car insurance.
What is an auto insurance deductible?
Your auto insurance deductible is the amount you’d pay out of pocket before any of your car insurance coverage kicks in. Say you get into a fender-bender accident, and there’s $1,500 worth of damage to your car. If you have Collision coverage and your deductible is $500, then you’d pay that $500 out-of-pocket, and your insurance company would cover what’s left of the cost after your deductible. In this case, that would be the other $1,000. Pretty simple, right?
When do you pay the deductible for car insurance?
Most often you’ll pay the deductible if you’re at-fault, or if there's no one else responsible who can pay for the damage (like if a deer runs into your car). If another driver is determined to be at-fault for the accident, their insurance should cover your damages, and you won’t have to touch your deductible.
Disclaimer: That’s the case as long as that other driver has insurance. If you’re on the bad end of a hit-and-run, you may need to use your Uninsured Motorist Coverage and/or Uninsured Motorist Property Damage Coverage to help pay for any damages and medical bills. In that situation, you’d dip into your car insurance deductible to pay for your property damage.
Coverages with deductibles
Not every coverage has a deductible. At Say, the coverages that have deductibles are:
- Uninsured Motorist Property Damage
In many cases, customers can choose from auto insurance deductible amounts of:
Other coverages, like Liability, Uninsured Motorist, and Medical Payments, have coverage limits, but not deductibles. A limit is how much a provider will pay out if you make a claim. So if your coverage limit for Liability Property Damage is $15,000, that means a provider would pay up to $15,000 for a claim to help cover damages to the other driver’s vehicle after an accident. When using a coverage with a limit, you typically don’t pay anything out of pocket until after your provider has covered that limit amount.
Deductibles and multiple claims
Deductibles can be confusing because they work differently for health insurance than they do for auto insurance. For health insurance, you simply have to meet your annual deductible, and then things from there on out are typically covered by your health insurance.
Unlike your health insurance deductible, auto insurance deductibles apply each time you file a claim. Let’s say after that fender-bender accident we mentioned, you accidentally side-swipe the cart return racks while parking at the grocery store, and there’s $2,000 worth of damage to your vehicle. Again, you’d pay your $500 deductible, and then the insurance company would cover the other $1,500. With each claim, your deductible starts over.
It doesn’t matter how many times you file a claim and pay your deductible this year, or even for the length of your policy. Your deductible starts from scratch each time you have a car accident and file a claim.
Determining a car insurance deductible that works for you
Everyone is different and will have varying needs for their deductible, so there really isn’t a general recommended deductible for auto insurance. Basically, you should know that your deductibles will affect your insurance rate. If you have a higher deductible, you’d pay more out of pocket if you got in an accident, but your monthly insurance rate would likely be lower. Because the insurance company would pay less if you had a claim, they’re able to charge you less on your monthly rate. Many people have a higher deductible so they can save on that monthly rate.
However, keep in mind that saving money right now may not always be the best option. You should pick your auto insurance deductible based on what you could afford if you did get in an accident. It’s not the most fun thing to think about worst case scenarios, but we’d hate for you to get in an accident and not be able to pay your deductible. Your car wouldn’t get fixed, and you’d be pretty unhappy.