When searching for car insurance, you’ve likely encountered the term “deductible.” Although it’s a critical component of an auto policy, you may not fully understand what a car insurance deductible is. Simply put, a car insurance deductible is an out-of-pocket payment put toward a claim before your insurer covers the rest (up to your policy’s limits). However, there’s much more to know about car insurance deductibles, as the amount you choose can impact your premium.
Let’s take a closer look at car insurance deductibles and how they work.
What is A Car Insurance Deductible and How Does it Work?
A car insurance deductible represents the out-of-pocket amount you must pay toward a claim before your insurance company covers the rest, up to your policy’s coverage limits. If this sounds familiar, that’s because most health insurance plans also come with a deductible. The key difference, however, is that health insurance deductibles are on an annual basis. In contrast, you must pay your car insurance deductible each time you file a claim when applicable.
Although a component of most car insurance policies, it’s important to note that not all car insurance claims require a deductible. For example, filing a claim through state-required liability coverage will not be subject to a deductible. However, other coverages, such as comprehensive and collision insurance, typically involve a deductible. Because you’re responsible for your insurance deductible each time you file an appropriate claim, selecting an amount you’re comfortable with is essential.
So, how do car insurance deductibles work? Let’s say you’re involved in a collision that causes $2,000 worth of damage to your vehicle, and you carry collision coverage with a $500 deductible. To file a claim and repair your vehicle, you’ll first pay $500 to your insurer. Once settled, your insurer will cover the remaining $1,500.
Which Car Insurance Coverages Have a Deductible?
The following coverages will typically have a deductible:
- Comprehensive coverage – Comprehensive insurance covers damage to your vehicle from incidents outside your control that weren’t caused by a collision, such as theft, vandalism, falling objects, and weather damage. Comprehensive coverage is subject to a deductible.
- Collision coverage – Collision insurance covers your vehicle when involved in a damage-causing accident with another car or object, regardless of fault. Collision insurance is subject to a deductible.
- Personal Injury Protection – Although not typically offered in California, Personal Injury Protection (PIP) covers medical costs and expenses for you and your passengers following an accident, regardless of fault. A deductible is required for PIP coverage in Delaware, Florida, Hawaii, Kentucky, Massachusetts, New Jersey, New York, and Oregon.
- Uninsured/Underinsured Motorist Coverage – Uninsured/underinsured motorist insurance covers bodily injuries or property damage following an accident with an uninsured or underinsured driver. A deductible isn’t required for bodily injury claims, but some states may require one for property mandate claims. In California, you can purchase a Collision Damage Waiver (CDW), which waves your collision coverage deductible when involved in an accident with an uninsured driver.
How Does My Car Insurance Deductible Affect My Insurance Premium?
You typically can set your deductible amount when purchasing a new auto insurance policy. A $500-$1,000 deductible is standard for most policies but may range anywhere from $100 to $2,000. However, there are a few things to consider before making your decision.
Most importantly, you need to select a deductible amount you’ll be comfortable paying in the event of an accident. Because you’re responsible for your deductible, choosing a high amount is unwise if you’ll have trouble paying.
Next, consider how the amount you select will influence your insurance premium. A higher deductible typically means a lower coverage rate because a deductible allows insurers to share repair costs with their policyholders. On the other hand, a lower deductible typically means a higher coverage rate.
- A high deductible = a higher out-of-pocket payment but a lower insurance rate.
- A low deductible = a lower out-of-pocket payment but a higher insurance rate.
If you can afford a higher deductible, it may be worth considering to reduce your overall premium costs. However, if you have multiple claims on your driving history and commute through heavy traffic, a lower deductible may be favorable to mitigate your out-of-pocket expenses.
Will I Need to Pay My Deductible If Someone Else Causes an Accident?
In most cases, you will not have to pay a deductible if an insured driver hits you and is found at fault for the accident. The other driver’s liability insurance should pay for your property’s damage in these situations. However, if you decide to go through your collision coverage while the fault is being determined, you must pay your deductible in the short term. After the fault is resolved, your insurer will seek reimbursement from the other party’s insurance company, including your deductible payment.
Will I Need to Pay a Deductible for a Hit-and-Run?
A hit-and-run is when a driver purposefully leaves an accident scene without providing any information to the other motorists involved. In these situations, collision coverage will be your best bet for repairing damage to your car.
If you’re a hit-and-run victim and cannot identify the driver involved, you will, unfortunately, be responsible for paying your collision coverage deductible to repair your vehicle. In California, you may only use uninsured motorist property damage (UMPD) coverage to cover a hit-and-run if you eventually identify the driver that hit you. Because collision and UMPD are optional coverages in California, you will have to pay for repairs on your own if you only carry the state’s minimum liability insurance limits.
Will I Need to Pay a Deductible If Someone Files a Liability Claim with My Insurer?
You will not have to pay a deductible if someone files a claim through your liability insurance provider due to an accident you cause. However, keep in mind that your insurance rate may increase if you are found responsible for a car accident.
Speak With a California Car Insurance Specialist
At Orion Indemnity, our focus is on providing California drivers with the coverages that work best for them. Whether you’re searching for a new policy or simply looking to expand coverage, our agents are here to help. Our team will guide you along your search for California car insurance and will answer any questions you may have. To learn more about Orion Indemnity and the coverages we offer, call us today at (833)-336-7466.
The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.
