Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Former Farmers Insurance CSR

UPDATED: Nov 12, 2020

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Last Updated: November 23, 2018

To a new driver, auto insurance might seem pretty straightforward. You pay a monthly premium to your insurer, and they’ll pay for any damage that your car might sustain, right?

Well, most new drivers probably haven’t taken a look at the vast complexities in the fine print of an auto insurance contract. Most experienced drivers know that besides your premium, there are many additional things to take note of – which auto mechanic you must repair your vehicle at, which situations are you covered for, who is allowed to drive your car, etc. But most importantly, you’ll have to understand this term: Deductibles.

What are auto insurance deductibles?

Auto insurance deductibles are the amount that you have agreed to pay out yourself when you are involved in an accident. In the event of an accident, you will have to pay this amount first before you can claim the insured amount from the insurance company.

For example, in your auto insurance policy, if you have a deductible set to $400, then you have agreed that you will pay $400 first for any damages to your vehicle. In an accident that costs you $4000, you will have to pay $400 before your insurer pays the remaining $3600.

In addition, how high of a deductible you pay will directly affect how much your premiums will be. Lower deductibles generally result in higher monthly premiums. Therefore, it is important to determine how much of a deductible you are willing to pay before deciding on an auto insurance plan.

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Do I have to pay deductibles for each coverage type in my insurance policy?

You will only have to pay deductibles for comprehensive and collision coverage.

Comprehensive coverage will cover all damages from things not associated with property collisions. Things like fires, theft, natural disasters, hail damage, falling tree branches, animal damage, and vandalism will be covered under comprehensive coverage.

Collision coverage will cover damages that arise from collisions with other vehicles or property. If you get into an accident with another vehicle, your collision coverage could pay for damage to your vehicle.

How do I decide on a higher or a lower auto insurance deductible?

Eventually, you’ll have to decide how high of a deductible you are willing to set on your auto insurance policy. So, how do you actually decide the amount of your auto insurance deductible? Here are some pointers and tips to help you decide:

The probability of an accident

Of course, you’ll never be able to predict when you’ll get into a car accident. However, you can deduce whether or not you have a high chance of being involved in an accident. If you’re living in an urban area, where there are a lot of vehicles, your probability of getting into an accident is higher than someone who’s living out in a rural area. Therefore, if you live in a high-traffic area, you should be setting lower deductibles as you might be asking your insurer for claim payouts at a higher frequency. Although your premiums will be higher, you could actually save more money in the long run if you end up filing a lot of claims.

Determine your finances

Before you choose how high of a deductible you want, determine how much you are capable of paying before you settle on the amount of the deductible in your insurance policy. Do not agree on a deductible amount that is more than you can afford. The reduced premium will not do you any good if you cannot afford to pay for your deductible and end up reaching into your savings, or going into debt, just to pay for it if you get into an accident.

Analyze the amount you will pay for your auto insurance policy

By discussing it with your insurance agent, you can get a basic idea of the amount of money you will save in the long run with a higher deductible. Agree on a custom-fit insurance plan by thinking about the number of times you use your car. If you use your car infrequently, you should get an auto insurance plan with a higher deductible, as your probability of getting into an accident is quite low.

Maximum deductible allowed

If your car is funded by an auto loan or if your car is leased, you must check if your bank or lienholder has a maximum deductible amount allowed. There are instances where the maximum deductible set by your loan terms is much lower than what you would have liked. Always ask the authorities in question, and read through the terms and conditions before making a decision.

Final Word on Deductibles

Auto insurance is important, even mandatory in some states. As such, it is a smart idea to understand the various terms and concepts involved. Deductibles are an extremely important part of your policy because the amount you choose will directly impact your finances. You’ll be paying higher or lower insurance rates depending on how high of a deductible you choose. Therefore, be sure to carefully weigh your options before deciding on a deductible amount in your auto insurance policy.