What Are Auto Insurance Deductibles & How Do They Work?

What Are Auto Insurance Deductibles & How Do They Work?

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Being involved in a car accident is no fun. After the initial shock comes the hassle of exchanging information with the other driver, talking to the police, making sure your vehicle receives necessary repairs, and finding adequate transportation in the meantime.

But one saving grace after an accident is your car insurance policy, covering what could be thousands of dollars in out-of-pocket expenses. These costs could be to restore your car to driving condition or medical treatment if you or others sustain injuries. 

But while your auto insurance provides financial assistance in times of need, often you're first responsible for a deductible payment. What is a deductible in auto insurance? 

Read on as we discuss the ins and outs of car insurance deductibles.

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Auto insurance policy basics

Car insurance financially protects drivers when involved in a traffic accident or other incident. An auto insurance policy pays for both vehicle damage and bodily harm for the policyholder and liability payments for others, should they be found at fault. 

But auto insurance policies aren't "one size fits all." Each policy has varying benefits depending on driving history, plan choice, and where someone lives, all a part of the equation.

Particular options like financial limits for comprehensive coverage, collision coverage, and deductibles determine the total cost of a car insurance premium. 

No matter where you live in the U.S., you probably need to have an insurance policy for your car. Exceptions include Florida, Massachusetts, New Hampshire, New Jersey, Texas, and Virginia, where different rules give drivers other options.

Motorists purchase policies with different car insurance companies and pay premiums each month or yearly to maintain coverage. 

Accident forgiveness discounts exist for safe drivers who exhibit safe driving habits. 

When someone buys an auto insurance policy, they receive an insurance card noting its specific terms, usually kept inside the vehicle in case of an accident. Some car insurance companies offer electronic versions, too.

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What's a deductible on car insurance?

A car insurance deductible is a set amount of money you pay out of pocket for a covered comprehensive or collision claim.

In the case of an accident where your vehicle sustains damage when you hit another car or stationary object, your collision policy covers the necessary repairs. However, before those benefits kick in, typically, you're first responsible for an insurance deductible amount.

The same is true for the comprehensive policy on your car insurance. The comprehensive coverage on your car insurance helps pay for vehicle damage due to events beyond your control, like theft, weather events, or vandalism. 

For a collision insurance policy, deductible amounts usually range from $100 to $1,000, with the most popular option at $500.

Your comprehensive deductible also varies depending on what option your choose, with $500 again proving common.

The deductible you choose on your collision and comprehensive car insurance policies affects your premiums. A lower deductible correlates to more significant monthly premiums, while higher deductibles mean lessened premium costs. For many consumers, the middle ground of $500 seems to strike a nice balance.

How does car insurance deductible work?

Unlike health insurance, which has a per-year deductible, a car insurance deductible applies on a claim by claim basis. 

Say you're in a traffic accident, and your vehicle sustains damage totaling more than $10,000. Let's also pretend your collision deductible is $500.

Though your car insurance coverage comes to the rescue, covering the bulk of the cost of repairs, first, you'll have to pay them upfront for your $500 deductible. So your insurance company ends up paying $9,500, while your out-of-pocket expense stands at $500. 

Similarly, what if a hail storm leaves your car covered in dents that require extensive bodywork to restore it to its original condition?

Maybe the body shop charges around $5,000 to smooth things out and make your vehicle look like it just left the factory. Again, your insurance company will require a deductible payment before paying out benefits. If you're deductible payment's $500, you still receive substantial financial assistance of $4,500.

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Additional details of a car insurance deductible

In certain situations, you may not have to pay any deductible at all.

In a collision with an at-fault driver where your vehicle sustains damage, you can file a claim through their insurance coverage and receive reimbursement, with no deductible required. Or, in the same situation, you can still file a claim through your insurance company, which will then seek reimbursement from the other driver's carrier. However, if both parties share fault, you might have to pay some or all of your deductible.

Certain insurance companies offer a "disappearing deductible" that goes lower and lower with each period that passes with no claims or violations. You can even end up with a $0 deductible after enough time passes. But after you file a claim, your deductible resets to its original amount. 

Depending on which state you live in, your insurance carrier might offer no-deductible claims on glass repairs. If you have the Progressive deductible waiver, your deductible might be zero if your windshield can be repaired rather than replaced. 

The liability insurance of your car insurance coverage doesn't have a deductible. So if someone files a claim against your liability coverage, you'll owe nothing out of pocket.

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Car insurance deductible in summary

Your auto insurance provides valuable protection against the costs resulting from an accident or other events like theft or weather damage. 

But before you receive monetary assistance, first, you have to pay a deductible. Your car insurance deductible goes into effect when you file a claim under your collision or comprehensive coverage and reimburses you for costs above that, up to your coverage limits. 

Remember, while high deductibles mean lower premiums, low deductibles lessen your insurance rates.

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Shift Editorial Team