What Is an Auto Insurance Deductible?

An auto insurance deductible is one of the most important factors to consider when choosing coverage for your vehicle. Because your deductible will impact your monthly premium as well as the amount you'll pay for damages after making a claim, it's critical you choose wisely.

So what is a deductible and how does it work? Here are some points to consider when evaluating car insurance options to decide what will work for your needs.

An auto insurance deductible is the fixed dollar amount you're responsible for paying as the policyholder toward the financial loss from a covered car accident. If your damages exceed your deductible, the insurance company will cover the remaining balance up to your coverage amount. You choose your deductible amount and your coverage limits and are required to pay up to the deductible amount before your insurance company steps in to cover the rest. For example, let's say you choose an insurance policy with a $1,000 deductible. If you're involved in an accident and the estimated damages are $2,000, you'd be responsible to pay $1,000 of a covered loss before insurance kicks in.

There are two main types of car insurance coverages that typically include deductibles:

• Collision: This coverage helps pay for damage to your vehicle if it hits another car or object, is hit by another car or rolls over.
• Comprehensive: This coverage helps pay for damages to your vehicle that are not caused by a collision. Examples include theft, vandalism, glass-only damage, hitting a deer or other animal, and storm damage.

After you’ve paid your applicable deductible, your insurance will cover the cost of the damages to your vehicle, up to the limits of your policy.

With car insurance, your full deductible is paid for each accident that you have. For example, if you get into three separate accidents during a given policy period and you have a $500 deductible, you’ll pay a $500 deductible for each accident. Your car insurance company typically only covers the cost of damages that exceed the deductible amount in the case of a covered loss.

To illustrate how your claim payment is calculated, if your deductible is $500 and the damages to your car total $450, you'd pay the full $450. But if the damages to your car total $1,000, you’d pay your $500 deductible, and the insurance company would cover the remaining $500.

You only pay a deductible when there are covered damages to your vehicle, not when there are damages to another person's car. That said, it can be difficult to understand every situation in which you’ll be required to pay a deductible. Here are a few scenarios to help you understand, but be sure to check with your insurance agent to verify what your specific coverages include.

• Another driver hits your car. If another driver is determined to be at fault for the accident, typically, their insurance company will be responsible for paying for your repairs if you file a claim with the other company. If you choose to file your claim with your insurance company, you'll owe your deductible, but your insurer will likely seek reimbursement of your deductible from the other driver’s insurance company. However, if a driver hits your vehicle and both you and the other driver are determined to be at fault, then you may be responsible for paying at least a portion of your deductible if you file a claim with your own insurance company.
• You hit another driver's car. If you strike someone else's vehicle and in doing so damage your car, your insurance company typically will pay for the damages to your car, and you'll be responsible for paying the deductible.
• Your car was damaged by something other than a collision. With comprehensive coverage, if your car is damaged in a storm, fire, flood or if you strike an animal, typically your insurance company will cover the damages and – depending on your policy – you are likely to have to pay your deductible.
• Your windshield was damaged. Generally, comprehensive coverage covers glass damage. In this case, your insurance company would pay for the cost to repair or replace your windshield. Depending on your policy, you may have to pay a deductible. Again, check with your insurance agent to confirm what your coverage will do.
• Your vehicle was damaged in a hit-and-run. If you have collision or uninsured/underinsured motorist coverage and someone hits your car and flees the scene, you likely will be responsible for paying your deductible. This type of claim would be worth a phone call to your insurance agent for guidance on your coverage and what you may owe.
• Your vehicle is totaled. If your insurance company determines your car is a total loss (e.g., generally, the cost of the damages exceeds the value of the vehicle), then it will typically pay for the fair market value of your car before the accident, minus your deductible.

Your deductible has an impact on your car insurance premium, so you’ll need to decide this based on your budget and perhaps several other considerations. In general, the higher the deductible you choose, the lower the premium you'll pay. Conversely, the lower the deductible you choose, the higher the premium you'll pay.

For example, if your current policy has a $500 deductible and you decide to increase your deductible when your policy is up for renewal, your monthly premium will likely decrease (assuming all other factors remain the same).

Here are a couple of other things to consider when choosing your car insurance deductible:

• How much of a deductible could you afford to pay? If you're in an accident, you may need to pay your full deductible, so it's important that it’s an amount you can afford. Consider starting an emergency fund to save up some money in case you have an accident that requires you to pay your deductible. Also, some insurance companies have minimum deductible requirements, so keep this in mind when you discuss your policy details with your insurance agent so you'll know what to expect if you have a mishap with your vehicle.
• How much is your car worth? The value of your vehicle may make a difference in what deductible makes sense for you. For the most part, the more expensive your vehicle, the more it costs to insure. That can translate into greater savings if you choose a high deductible.

Several factors affect the cost of your car insurance policy, but your deductible will have an impact on your premiums as well as on how much you'll pay out of pocket for damages to your car from an accident. Before you select a policy, consider your options for your deductible. Hopefully you may never face a situation where you'll have to pay a deductible, but it's important that you be careful to choose a policy with a deductible that you can afford to pay.

Your insurance agent can help you address your deductible questions. Contact Travelers for your car insurance quote.