Choosing a deductible amount on your auto insurance policy can have a big impact on your policy premium and how much you’re responsible for paying if you’re involved in an accident. Your car insurance deductible is the amount you would pay out of pocket for a collision or comprehensive claim to repair your car, while your insurance company pays the rest. So how should you choose your deductible limit? bankrate has the answers.
How do car insurance deductibles work?
Comprehensive coverage includes comprehensive and collision coverage, which covers damage to your vehicle. Collision coverage pays for damage caused by colliding with another vehicle, object, or person. Comprehensive coverage pays for other forms of damage, such as theft, vandalism, weather-related damage, fire, and hitting an animal. Unlike liability coverage, both collision and comprehensive coverage have deductibles, which is the amount of a claim you agree to pay out of pocket. Although you can choose the same deductible for both, they are independent of each other. for example, you could have a comprehensive deductible of $100 and a collision deductible of $500.
Reading: What is the best deductible for car insurance
Imagine your car is parked outside when a hail storm hits. your car sustains $1,000 of damage and you have a $100 comprehensive deductible. your auto insurance company will pay $900 of the claim and you will pay your $100 deductible. If you rear-end another vehicle, your liability coverage will pay for the other party’s damages and injuries, while your collision coverage will pay for damage to your car. if you have a $2,500 repair bill and a $500 collision deductible, you’ll get a $2,000 claim payment check. Although commonly misunderstood, your deductible is subtracted from your claim payment; you don’t need to pay your deductible before your insurance company writes a check.
Both collision and comprehensive coverage pay without regard to fault. You can use your full coverage to repair your vehicle, whether you caused an accident or another party did.
how do auto insurance deductibles affect premiums?
bankrate’s study of average auto insurance premiums and deductible levels in more than 35,000 zip codes across the country confirmed that, in general, the higher your deductible, the lower your premium. As you are willing to pay more in case of an accident, insurance companies charge you less, although the surprising thing is that the difference is not always significant. Note, too, that our study focused on drivers with clean driving records. If you have an accident or ticket surcharge on your policy, you can see further savings by increasing your deductibles. While your deductible level can be a tool to help you control your insurance premiums, it’s not always the most effective way to save on auto insurance.
- higher deductible: choosing a higher deductible can lead to a slightly cheaper auto insurance premium. however, you should first consider whether you can reasonably pay the deductible amount at any time without sacrificing your finances. if this is not the case, it might make sense to choose a lower deductible and have a slightly higher premium.
- Lower Deductible: A lower deductible means you won’t have to pay as much out of pocket if you’re involved in a collision or comprehensive claim. While this is true, a lower deductible can also tempt drivers to file more frequent claims, which can increase your rates over time if you have too many at-fault incidents.
- The actual cash value of your vehicle: The value of your vehicle may help you decide on deductible levels. If your car is only worth $2,000, a $1,000 deductible would cover half the insurance payment. As your vehicle ages, you may want to consider adjusting your deductibles to account for the lower value.
- Your monthly or yearly budget: Because your deductibles affect your premium, your budget can play a role in determining the amounts you choose. For example, if you don’t have any money in reserve, a lower deductible might make sense. That way, you’ll pay a little more each month or year instead of having a higher deductible if you file a claim. If you have enough savings to feel comfortable paying more out of pocket during a claim, you can opt for a higher deductible to save on your premiums.
- deductible add-ons: there are optional deductible programs that you may be able to take advantage of. A disappearing deductible is a common option offered by auto insurers. This program will generally lower your deductibles by a set amount for each year you don’t have a claim, though the details vary by company. You may also have the option to choose “full glass,” which means regardless of your comprehensive deductible, you’ll pay nothing if the only damage to your car is glass. this can be helpful if you drive frequently and are at risk of cracking or shattering windshields and windows due to road debris.
- $100,000 bodily injury liability per person
- $300,000 bodily injury liability per accident
- $50,000 property damage liability per accident
- $100,000 uninsured motorist bodily injury per person
- $300,000 uninsured motorist bodily injury per accident
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more information: the cheapest car insurance companies
average premium for full coverage by deductible amount
*premium impact is adjustment of $500 collision and comprehensive deductible amounts
Small changes to your deductible levels, such as changing from a full $250 deductible to a full $500 deductible, only moderately change your premium. however, larger changes can have a larger impact. If you have a $100 comprehensive deductible and a $500 collision deductible, increasing to $1,000 for both could save you almost $350 per year, on average.
what to consider when choosing your deductibles
Choosing the appropriate deductible levels is an important step in purchasing comprehensive coverage. if you choose tiers that are too high, you may not be able to pay your deductibles, which means you won’t be able to complete the claims process. But too low a deductible can mean paying a higher premium than you want.
Insurance agents generally recommend that your full deductible be between $100 and $500. Comprehensive claims tend to be filed for less damage than collisions, so having a lower deductible often makes sense. Collision deductibles can sometimes be as low as $100 or $250, but most agents recommend that you start at $500 and go higher if you can afford it.
When choosing your deductible, you may want to consider:
It may seem complicated to choose an appropriate deductible level. however, some thought about his financial situation, researching his car’s value, and requesting quotes with various deductible options may help you make a decision you’re comfortable with. Talking to a licensed agent can also be helpful. an agent can review your circumstances and help you choose deductible levels that suit your needs.
methodology
bankrate uses quadrant information services to analyze 2021 rates for all zip codes and carriers in all 50 states and washington, d.c. Rates quoted are based on a 40-year-old male and female driver with a clean driving record, good credit, and the following total coverage limits:
collision deductible: rates were calculated by evaluating our base profile with the following deductible amounts applied: 500 and 1000.
full deductible: rates were calculated by evaluating our base profile with the following deductible amounts applied: 100, 250, 500 and 1000.
To determine the minimum coverage limits, Bankrate used a minimum coverage that meets each state’s requirements. our base drivers own a 2019 toyota camry, commute five days a week, and drive 12,000 miles a year.
These are sample rates and should only be used for comparison purposes.
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