How Your Deductible Affects Your Premium

Key takeaways

• A deductible is the amount you pay toward a covered claim before your insurer pays the rest.
• Deductibles usually apply to collision and comprehensive, not to liability, and typically apply per claim.
• A higher deductible generally lowers your premium and a lower one raises it, but how much varies widely.
• Choose a deductible you could pay tomorrow without hardship, then check the break-even math.

What a deductible is

A deductible is the part of a covered loss you pay yourself before your insurance pays the rest. Say a hailstorm causes $3,000 of covered damage and your comprehensive deductible is $500. You cover the first $500 and your insurer pays $2,500. If the damage came to $400, less than the deductible, the insurer would pay nothing, and filing a claim would not help.

In practice you rarely hand the deductible to your insurer. It is subtracted from what the insurer pays, and you settle the difference with the repair shop.

Which coverages have deductibles

Deductibles appear mainly on the coverages that protect your own car:

• Collision, for damage from crashes with vehicles or objects
• Comprehensive, for theft, weather, fire, vandalism, animal strikes and glass

Liability coverage, which pays for damage you cause to others, normally has no deductible. Depending on your state and policy, personal injury protection or uninsured motorist property damage coverage may carry deductibles of their own. Your declarations page lists each deductible next to the coverage it applies to.

Per claim, not per year

Unlike many health insurance plans, auto deductibles usually apply to each claim rather than once a year. Two separate collision claims in the same year generally mean paying the deductible twice.

Why a higher deductible usually lowers the premium

When you agree to a higher deductible, you take on more of each loss yourself, and you are less likely to file small claims at all. That reduces what the insurer expects to pay, so the premium for collision and comprehensive usually drops. A lower deductible works the other way: less out of pocket when something happens, a higher price the rest of the time.

How much the price moves depends on the insurer, the car, where you live and your other rating factors. Sometimes the difference between two deductible levels is substantial; sometimes it is small. The only way to know is to ask for quotes at more than one level.

A simple way to run the math

A useful question is how long the premium savings would take to cover the extra amount you would pay after a claim. That is your break-even point.

The calculation isn't the whole story, but it turns a vague choice into a concrete trade-off you can weigh against your own driving history and finances.

Questions to ask before you choose

Could I pay it tomorrow?

This is the most important test. A deductible only works if you can actually cover it when a claim happens. If a $1,000 surprise would mean missing a rent payment or carrying a credit card balance, a lower deductible may be the more practical choice even if it costs more over time.

What is the car worth?

Collision and comprehensive pay up to the car's actual cash value minus your deductible. On a car worth $3,000, a $1,000 deductible means the most you could receive is about $2,000. For an older, low-value car, compare the yearly cost of these coverages with what they could realistically pay out.

Does my lender set a limit?

If your car is financed or leased, the contract often sets a maximum deductible you are allowed to carry. Check before raising yours.

How likely are small claims?

Your own history is a reasonable guide. Parking on a busy street, a long commute, or living where hail and deer are common all make smaller claims more likely.

Your two deductibles don't have to match

Collision and comprehensive deductibles are usually set separately. Some drivers keep a lower comprehensive deductible, because events like hail or a cracked windshield are outside their control, while carrying a higher collision deductible. Ask to see prices for a few combinations before you decide.

When the other driver is at fault

If another driver causes the crash, their property damage liability coverage should pay for your repairs, and no deductible applies to a claim against their policy. If you go through your own collision coverage instead, perhaps because fault is disputed or you want repairs started sooner, you pay your deductible first. Your insurer may then pursue the other driver's insurer, and if it recovers the money you may get your deductible back, in full or in part.

Changing your deductible

You can generally change your deductible by contacting your insurer or agent, either during the policy term or at renewal. The change applies going forward, not to a loss that has already happened. Ask for the new premium in writing before you confirm.

Helpful official resources

Independent public resources for going further. AutoQB is not affiliated with any of these organizations.

• National Association of Insurance Commissioners (NAIC)The organization of the chief insurance regulators of the 50 states, the District of Columbia and the U.S. territories.
• Consumer Financial Protection Bureau (CFPB)The federal agency responsible for consumer protection in the financial sector.
• USA.govThe official web portal of the U.S. government.

This guide is general educational information about how car insurance commonly works in the United States. Coverage terms, rules and requirements vary by state and by insurer, so your policy documents, your insurer or agent, and your state insurance department are the authorities for your situation.