Insurance terminology can be confusing at times, with all its different nuances and specific terms. One of the most important concepts to understand is the “deductible.” Why? Because you have to choose a deductible when you take out a car insurance policy. You need to consider this decision carefully because it influences the price of your insurance and your coverage in the event of a claim.
To help you make an informed decision, we’ll use three key questions to explain exactly what a car insurance deductible is and what the most important considerations are.
What exactly is a deductible?
A deductible is the amount that you are responsible for paying in the event of a claim. It applies to any insurance policy and varies depending on the contract. This may seem quite simple on the surface, but it’s not something you should take lightly. The deductible you choose has a real and potentially significant impact on your life!
The amount of your deductible influences the cost of your insurance. Essentially, the higher your deductible, the lower your insurance premiums, and vice versa. But if you do file a claim you will have to pay the amount of your deductible. You get it—if there were no deductibles, insurance premiums would be higher.
How do I decide what deductible to choose?
So how do you make the right choice? There are a number of factors to take into account. The most important thing is to choose the best deductible for your particular situation.
Let’s take an example: you make a claim and the cost to repair your vehicle is $3,000. If your deductible is $500, you pay $500 and your insurer pays out $2,500 as your benefit to cover the difference.
On the other hand, if you don’t make any claims for several years, you may save more than the amount of the deductible that you would have to pay if you had an accident.
It’s up to you, depending on your budget and your risk tolerance!
What you need to ask yourself is whether you have the financial capacity to pay a given deductible. If so, a higher deductible is a surefire way to save money on your insurance premium. But don’t forget, accidents DO happen! And if one does, you’ll have to pay promptly.
Who do I pay my deductible to in the event of a claim?
Practically speaking, the deductible is taken off the settlement agreed upon with your insurer when you make an insurance claim. For example, if a mechanic repairs your vehicle for $3,000 and your deductible is $500, you must pay your mechanic the $500 when picking up your vehicle. Your insurer will take care of the rest.
If your vehicle is a total loss and your insurer reimburses you directly, the deductible will be taken off that amount.
Total loss: $15,000
Deductible: $500
Benefit: $14,500
Your insurer will pay out $14,500.
In some cases, you may be exempted from paying a deductible. It’s true! For example, if you are in an accident in Québec involving another identified vehicle and you are not at fault, you won’t have to pay the deductible. You may also be exempted if your vehicle is damaged by fire or lightning.
Now that you’re ready to choose a deductible for your car insurance, remember these two words: calculate and compare. That’s the winning combination! Work up different scenarios and ask for insurance quotes with different deductibles. That way you can find your happy medium.
Good luck!
If you opt for full coverage when making selections for your auto insurance policy, the insurance company will have you select your car insurance deductible amounts. Deductibles apply for coverage like collision and comprehensive coverage, and are what you would pay first to repair your vehicle after an incident before the insurance company covers the rest. Because deductibles are tied to how much you pay in premiums, it helps to know the different amounts you can choose and your best auto insurance options.
Below, Bankrate’s insurance editorial team walks through how much car insurance costs with a $500 deductible and what the best car insurance companies to consider if you’re looking for a policy.
What is a car insurance deductible?
A car insurance deductible is the amount you would be responsible for paying out of pocket if your vehicle needs repairs or replacement due to a covered accident or incident. Deductibles might also apply to claims for personal medical expenses. Whereas insurance premiums are how much you pay to insure your car for a period of time, your deductible only applies when you make a covered physical damage claim. Deductibles are usually available in increments ranging from $0 to $1,500, and the amount you choose has an impact on how much you pay for premiums. Most people choose a deductible between $500 and $1,000.
If you caused an accident, your liability coverage will cover the other party’s medical and property damage expenses. You will not have a deductible tied to this amount. However, you will typically find an auto insurance deductible tied to a comprehensive, collision or personal injury protection (PIP) claim you make with your vehicle. You may also have one for uninsured or underinsured motorist property damage claims. The types of coverage a deductible applies to can vary from state to state. A licensed insurance agent can assist with the appropriate deductible for each coverage.
Cost of car insurance with a $500 deductible
The average cost of car insurance with a $500 deductible is $1,771 per year for a full coverage policy, based on Bankrate’s 2022 study of quoted annual premiums. Bankrate’s sample driver profile includes a $500 deductible for both collision and comprehensive coverage. However, your rate is likely to differ from the national average based on a variety of personal factors, like your state, policy options and insurance company. A licensed insurance agent can work with you to show you exact quotes based on your personal factors.
Best car insurance with a $500 deductible
A $500 deductible is a fairly common choice, which means you should be able to find quotes from numerous providers with this deductible amount. The table below includes examples of the best car insurance with a $500 deductible in 2022 determined by Bankrate’s analysis of average annual premiums.
| Erie | $110 | $1,321 |
| Geico | $108 | $1,297 |
| State Farm | $116 | $1,397 |
| Travelers | $121 | $1,447 |
| USAA | $101 | $1,209 |
A full coverage policy, which typically refers to a policy including liability, comprehensive and collision coverage, provides greater financial protection versus only purchasing the bare minimum. However, there are other options available for added financial protection. For instance, gap insurance helps pay the “gap” between how much you owe on a lease or loan and the amount an insurance company values your vehicle at, should your new vehicle be totaled in a covered accident or if it is stolen and cannot be recovered.
Is it better to have a higher deductible?
Deciding if it is better to have a higher or lower deductible is an individual choice and based on your financial circumstances. While a higher deductible usually allows for lower overall premiums, it also means you would have to pay more out of pocket in case of a collision or comprehensive claim with your vehicle. Many financial experts recommend having enough in savings to cover the deductible amount at any point. For example, if you have an at-fault car accident and your vehicle gets damaged, your out-of-pocket costs for repairs would reflect the amount you selected for your deductible.
The chart below illustrates the difference in premiums when you choose a $500 deductible versus the $1,000 option. By selecting the higher deductible option, the national average of premium savings is $215. It is up to your personal and financial situation to determine if it is better to pay less upfront and have to pay more out of pocket should you need to make a claim.
How to keep car insurance rates low
Adjusting your deductible is only one way to save on your auto insurance policy. In some cases, the cost difference between a higher and lower deductible may be negligible, or the higher deductible may be a price you couldn’t comfortably pay out of pocket. If that’s the case, there are still solutions to manage your car insurance premium.
Other ways to keep your car insurance rates low could include reviewing all discounts offered by your carrier to see if you are missing any that you’re eligible for on your policy. Additionally, driving safely and maintaining a clean driving record is the best way to keep rates in your favor. Being in an at-fault accident or receiving a moving violation could increase your car insurance rates for years to come.
Methodology
Bankrate utilizes Quadrant Information Services to analyze 2022 rates for all ZIP codes and carriers in all 50 states and Washington, D.C. Rates are weighted based on the population density in each geographic region. Quoted rates are based on a 40-year-old male and female driver with a clean driving record, good credit and the following full coverage limits:
- $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
- $500 collision deductible
- $500 comprehensive deductible
To determine minimum coverage limits, Bankrate used minimum coverage that meets each state’s requirements. Our base profile drivers own a 2020 Toyota Camry, commute five days a week and drive 12,000 miles annually.
These are sample rates and should only be used for comparative purposes.