When I was a new driver, I didn’t have much of a concept of the ins and outs of car insurance, especially how deductibles work. However, not long after I became an independent working adult with my own insurance, a roadway accident put me face-to-face with my car insurance deductible. 

Hopefully, your first interaction with car insurance deductibles is a bit more proactive than mine was. Your car insurance deductible is an important feature of your vehicle’s insurance policy that you’ll want to be intimately familiar with before you actually need it. 

What is a deductible?

Your car insurance deductible is the amount you have to pay out of pocket before your insurance provider will cover any of the expenses associated with an accident or loss event. Let’s say you find yourself facing a $1,000 repair bill and your car insurance policy has a $500 deductible. That means, you’ll pay $500 out of pocket for the repair while your insurance company covers the remaining $500 in costs.  

That deductible amount written into your car insurance policy will vary and depend on how much coverage you’ve purchased. 

Collision vs. comprehensive deductibles 

Depending on where you live, your minimum coverage requirements will vary. However, by design, minimum car insurance coverage only helps pay the cost of repairs of other drivers if you’re at fault.

So what happens with your own repair costs? That payment comes out of your own pocket unless you’d opted to add collision coverage to your policy. As you might expect, collision coverage with your car insurance provider carries a deductible. Your insurance provider will only pick up the cost of repairs once those costs have exceeded the deductible amount.

>>Read More: Comprehensive vs. Collision: What’s the difference?

Not all accidents involve two parties, however. Let’s say the unexpected happens, and your car is broken into, stolen, or vandalized. Or, maybe a tree falls onto your car after a raging storm. 

In these incidents, your state’s minimum coverage likely wouldn’t cover the repair costs, but having comprehensive coverage in your policy would. Comprehensive coverage also has a deductible, the amount of which varies depending on how much you’re paying for this additional coverage.

How does my car insurance deductible work?

Your car insurance deductible is thankfully a simple calculation on the part of your insurance company. The deductible process works like this:

  1. You report the incident to your insurance company.

  2. Your insurance company investigates the incident to determine fault, and either recommends an auto body shop for you or allows you to use your own shop.

  3. The repair shop provides you and your insurance company the repair estimate.

  4. You have your car repaired and pay the bill.

  5. Your insurance company reimburses you for the cost of the repair or the cost of the repair minus the deductible.

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The car insurance deductible process will change depending on whether you are loaning or leasing a car, or own it outright. 

  • If your vehicle has a loan or a lease, the insurance company will typically send the payment directly to the repair shop, and may then bill you for the deductible difference. For example, if the insurance company pays your repair shop $2,500 directly, and your deductible is $250, you’ll receive a bill from your insurance company for $250.  

  • Alternatively, if you own your car, you may have to pay directly out of pocket and receive reimbursement from your car insurance provider at a later date. The reimbursement amount will have the deductible subtracted from the total amount you receive.  

Make sure to check with your insurance provider before sending your vehicle to a repair shop. While the law prohibits your car insurance provider from dictating the shop you use, the provider may provide a list of recommended and preferred body shops. Nevertheless, if you have a trusted repair shop, you can send your car there without problems. 

How does the deductible affect my premium?

As with health insurance, typically the higher your car insurance premium is, the lower your deductible amount will be. 

Before purchasing collision or comprehensive insurance, consider whether you can afford the higher premium costs that come with the lower deductible amounts. 

You should strongly consider:

  • How much you have in your emergency funds

  • The age of your car

  • The likelihood that you’ll have to make a claim

If you opt for a higher deductible and a lower premium, you may need to have several thousand dollars in a deductible. This is a good cost-saving measure if you live in a low-risk city where vehicle accidents are uncommon. 

However, if you live in a high-risk city, you may want a lower deductible with a higher premium. A higher risk of accidents means you may end up paying more out of pocket in the long run for the type of incidents covered by your collision and/or comprehensive insurance policy.

Do I always have to pay a deductible?

Following my own accident several years ago, I found myself frantically Googling “how does a car insurance deductible work” for one reason: I didn’t see the deductible payment coming. Although my insurance company covered the cost of my repair, it was unable to collect payment from the at-fault driver’s rental company. The result? I received a $1,000 bill for the deductible. 

My situation could happen to you as well, but it doesn’t have to. If another driver is found at-fault, then you can file a claim with the at-fault driver’s insurance to get the repair costs covered. If your claim is successful, the at-fault driver’s insurance will pay the repair shop for the full costs, or you’ll get reimbursed for the amount. 

Filing a claim with an at-fault driver’s insurance provider can take time, and the provider may fight the claim (as happened in my case). You can try to take the provider to court, or you may want to work through your own car insurance provider. 

Your provider can cover the cost of the repair while trying to prove the other driver was at fault. You’ll still pay the deductible, but if your provider is able to establish you weren’t at fault, you should get reimbursed for the deductible. 

Find the best car insurance deductibles at the best price

No two insurance providers are exactly alike, so your deductible options will vary depending on your provider. If you need help finding the most trustworthy car insurance providers with the best coverage, Squeeze can help. We offer real quotes from real agents to help you avoid sticker shock.