4 Factors in Choosing an Auto Insurance Deductible

Man driving a car

Choosing the right deductible for your automobile insurance policy can seem overwhelming. There isn’t a one-size-fits-all solution when it comes to choosing the optimal deductible. But you can navigate this decision by weighing your options and considering the most sensible deduction for you and your situation.

We’ve identified four vital factors to consider before choosing the deductible for your auto insurance policy.

But first, let’s look at the basics of a deductible and how it works.


What is an auto insurance deductible?

Your auto insurance deductible is the amount you pay out-of-pocket when a claim is filed against your auto insurance policy.

If you’ve been in an accident or your vehicle has been damaged, you may need to file a claim with your auto insurance company to cover the repair cost. The deductible is the amount of money you’ll pay to cover the cost of the accident or damage before your auto insurance policy kicks in.

The average auto insurance deductible is $500. Other common deductible amounts are $250, $1000, and $2000.


Selecting a deductible

Finding the right deductible is important. What are the factors you should consider when selecting your auto insurance deductible? Let’s examine the four we’ve identified.


  1. Your Budget
    Your budget may be the most important factor when choosing your auto insurance policy’s deductible. The higher your deductible is, the lower the cost of your monthly insurance payment (also known as a premium).Sounds great, right? The downside is that while lower monthly premiums are easier to manage, having a higher deductible means you’ll have to pay more out of pocket if you have a claim against insurance. If your monthly budget is tight, having the money you’ll need to cover your deductible may be difficult. If you choose a lower deductible, your monthly premium will be higher, but you will pay less out of pocket if you have an insurance claim.


  1. Your Driving Habits
    If you have a history of accidents or moving violations, consider a lower deductible and the higher monthly premiums that accompany it. In theory, your driving habits indicate you’re likely to file a claim more frequently, thus benefiting from the lower deductible amount.On the other hand, a higher deductible—and its lower monthly premium—may be a good option if you have a clean driving record since you are less likely to file an insurance claim with frequency.


  1. Your Savings
    As noted above, the higher your deductible, the more prepared you need to be to pay it. Drivers with high deductibles should always have enough savings to cover the deductible in the event of an accident. You don’t want to choose between paying your deductible and other bills.


  1. Your Vehicle
    Apart from collectible cars, a lower deductible may make sense if your vehicle is older. Cars that are several years old are typically less costly to insure and lose value with each passing year, so the insurance payouts made to an owner after an insurance claim is filed will also be lower. A higher deductible may be a better option if you drive a newer or more expensive vehicle.


Making your auto insurance work for you

Choosing the right insurance deductible for you isn’t always easy. It requires every driver to select a deductible amount that considers the four factors we’ve outlined: personal budget, driving habits, personal savings, and the vehicle’s value.

Additionally, it’s important to review your auto insurance coverage routinely. Your budget, driving habits, savings, and the car you own can change over time, so review your needs and deductibles regularly with an insurance expert. They can assess your insurance and help you resolve any changes in your lifestyle or driving habits that may precipitate a change to your coverage.


Do all auto insurance policies have a deductible?

Traditional automobile insurance policies require a deductible for some coverage but not others. Compare all the auto insurance types and their correlating deductible below.


Comprehensive Coverage: Deductible

This coverage covers damage from events beyond your control, like vandalism, unusual weather, falling objects, etc. It requires a deductible in most cases, except for certain glass claims.


Collision Insurance: Deductible

This form of insurance almost always has a deductible. Collision insurance covers your car from accidents, regardless of who or what may be responsible for the accident.


Liability Insurance: No Deductible

This type of insurance never requires a deductible. It helps cover any damage you cause to another person or their property in an accident.


Personal Injury Insurance: Deductible

This insurance coverage is required in 13 states, including Delaware, Florida, Hawaii, Kansas, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Oregon, and Utah. It helps with medical expenses for you and your passengers if you are involved in an accident. Sometimes this insurance coverage is referred to as PIP.


Uninsured Motorist Insurance – Property Damage: Deductible

Uninsured Motorist Insurance covers the costs related to property damage you sustain after an accident with an uninsured (or underinsured) driver who doesn’t have adequate insurance. Sometimes this insurance coverage is referred to as UMPD.


Uninsured Motorist Insurance – Bodily Injury: No Deductible

This form of coverage typically has no deductible. Your Uninsured Motorist Bodily Injury coverage insurance helps to pay medical expenses when you are in an accident with an uninsured (or underinsured) driver who doesn’t have adequate insurance. Sometimes this insurance coverage is referred to as UMBI.


Important auto policy deductible takeaways

  • No one-size-fits-all solution exists for choosing a deductible amount on your auto insurance policy.
  • Not every type of car insurance uses a deductible.
  • The higher your auto insurance deductible, the lower your car auto insurance premium.
  • Most drivers pay a deductible when not at fault in a collision, but some exceptions exist.
  • You must pay your deductible if you are at fault in a collision.
  • If the damage your vehicle has sustained will cost less than your deductible, paying for the repairs out-of-pocket is better than filing a claim.


Next Steps

Evaluating these factors and making an informed decision is a key component to making your auto insurance work for you. Contact our personal insurance team to review any questions you have about your existing policy.

The above description provides a brief overview of the term and phrases used within the insurance industry. These definitions are not applicable in all states or for all insurance and financial products. This is not an insurance contract. Other terms, conditions and exclusions apply. Please read your official policy or full details about coverage. These definitions do not alter or modify the terms of any insurance contract. If there is any conflict between these definitions and the provisions of the applicable insurance policy, the terms of the policy control.