As a newcomer to the auto insurance world, you may need help understanding auto insurance deductibles. Selecting the right auto insurance deductibles limit can significantly influence your premium. We can’t control accident uncertainty, but we can lower car collision risk by properly understanding auto insurance deductibles.
In my previous article, I wrote about how long it takes to get car insurance. Where elaborately explain every question related to car insurance duration.
In this blog article, you are going to learn details about auto insurance deductibles. If you are tired of finding out the answer to how car insurance deductible works, then this article is for you.
Let’s start with the following:
Key takeaways:
- The average car insurance deductible is $500 in the USA. The deductible amount could vary based on state & insurance policy, but usually, it ranges between $500 to $1,000.
- You can only change your deductible options once they expire. Deductible has an inverse relationship with car insurance premiums.
- Your insurance provider will start to initialize your car repair cost once you pay the deductible.
- You can get a deductible waiver in some auto insurance coverage, but there is no legal way to avoid Deductible in America.
- You have to pay the deductible to the insurance company whether you are at fault or not in a car accident.
- The insurance companies will only pay for car damage once it is bigger than the deductible.
How car insurance deductible works in the USA?
A car insurance deductible is a financial contribution toward the cost of car damage associated with insurable events. As a policyholder, you have to pay your deductible money in advance; then, the insurance company will pay the remaining amount.
Below are the steps that describe how car insurance deductible works:
Deductible amount: In America, the average deductible for car insurance is $5,00.Deductible money ranges from $250, $500, $1000 & $2,000. Usually, a higher deductible will cost a lower insurance premium & a lower deductible will cost a higher premium. There is no good deductible for car insurance; rather, it depends on your need & affordability. Therefore, it is difficult to recommend deductibles for auto insurance.
Say you are a skilled driver & choose a $5,00 deductible. There are better options than this $500 because deductibles help you against accidents. You have to understand that driving skill is not your accident proof; that’s why this is called an accident. Samways, $1,000 could be a good amount based on your driving route, financial condition & needs.
Pay the Deductible: After finalizing the deductible amount, you have to pay your deductible money to claim accident coverage. After accepting deductible money, the insurance company will take the necessary steps to pay the remaining expenses.
Let’s consider a scenario:
- You have chosen a $2,000 deductible policy (you have to pay this from your pocket).
- Your car sleeps on an Icey Road & falls on a dam (the insurance company will consider it an accident due to bad weather).
- Total damage is $6,000
So, the insurance company will pay = total damage-deductible
=$6,000-$2,000
=$4,000
Deductible options: Some insurance company has deductible limits & this limitation could vary based on state & policy. Usually, they set a minimum to maximum amount & you will find details on deductible options.
For example, ABC insurance company has lower $5,00 & maximum $1,000 deductible limits. So, your deductible amount should be at least $5,00 & not more than $1,000.
Deductible amount reset: The insurance company will reset your deductible amount after paying. That means you have to pay your deductible amount again for a new claim.
Say you have paid $1,000 as a deductible for one accident. After a few months, you have encountered another accident. To claim coverage for a second accident, you have to pay $1,000 for the deductible amount.
How deductibles work: When you are involved with any type of car collision, first, you have to pay your deductible. The insurance provider will pay the remaining expense if it falls under policy coverage.
For example, you have a deductible amount worth $8,00 & car damage cost is $2000. First, the insurance company will check whether it falls under policy coverage; if it falls, then they will pay the remaining cost after receiving the deductible.
Let’s understand it mathematically,
Scenario-1:
- The deductible amount is $1,000
- Car damage is also $1,000
So, the insurance company will pay = the Car damage amount-Deductible
=$1,000-$1,000
=$0
Scenario-2:
- The deductible amount is $2,000
- Car damage is $12,000
So, the insurance company will pay = the Car damage amount-Deductible
=$12,000-$2,000
=$10,000
How frequent claim work: If you have a bad driving record or live in a zone where accident risk is higher, then you will need to claim recurrently. If you claim frequently, then the insurance company will raise your deductible.
Vanishing Deductible: In the USA, some insurance company offers deductible credit by analyzing your driving record. This credit facility will help you to lower your deductible amount.
For example, an insurance company can give you an annual $100 deductible credit for safe driving. So, your three years of safe driving could reduce the $1,000 deductible amount to $7,00 ($1,000-$100×3).
Ok, I can understand that deductible is a complex topic in vehicle insurance. Therefore, you may ask for more details to clarify your doubts. Isn’t it? Let’s see the following questions.
Who pays the deductible in a car accident?
The policyholder pays the deductible. If you are involved in an accident, each time as a policyholder, you have to pay the deductible amount & insurance company will pay the repairing expense.
As a policyholder, you may now ask yourself, what will happen if an accident occurs due to another’s fault? Let’s understand it in detail:
Do you pay the deductible if you are not at fault?
Yes, whether you are at fault or not, you have to pay your deductible. If you are not guilty, then you can file a Subrogation where your insurance provider will try to recover the deductible for car damage from the at-fault driver’s insurance company.
Say David is involved in a car accident due to John’s fault. Below are the details:
- David has a deductible of $5,00
- John has a deductible of $6,00
- Car damage expense for David is $3,000
- Car damage expense for John is $2,000
First, David has to pay a $500 deductible; then, the insurance company will pay $ 2500. After that, the insurance company will subrogate against John’s insurance provider to recover David’s deductible & car damage. This subrogation process could take from a few weeks to 12 months to pay the total repair expense (i.e., $3,000) of David’s car.
This time, you may think about what will happen to John’s car damage. Let’s see
Do I pay a deductible if I hit a car?
Yes, you have to pay the deductible if you hit a car. You have to pay your deductible so that the insurance company can begin the process of paying your car damage.
For John’s accident fault, he has to bear a total of $5,000 ($3,000+$2,000). First, John has to pay the deductible of $6,00; then, the insurance company will pay the remaining $4,400 ($5,000-$6,00).
Sometimes, financial difficulty makes us insolvent to pay deductible. Are you also suffering? If yes, then your next question should be the following one.
What happens if you can’t pay your car insurance deductible?
The insurance company will not approve your car repair expense if you can’t pay your car insurance deductible. Unable to pay deductible money signals that you are a risky customer & it is also possible that the insurance company will cancel your policy.
Though there is no legal way to avoid car insurance deductible in the USA, you can do the following things to avoid paying car insurance deductible if your present financial condition is bad:
Consult with the repair shop: If you repair your car from one shop repeatedly, then you can discuss your present financial situation with the shop owner. If you have a good payment record, then they may agree to repair without a deductible.
Financial help from the insurance company: Some insurance provider offers financial support for policyholder. So, you can discuss it with them for financial grants.
Pay with a credit card: If you have a credit card, you can pay the deductible from the credit card. You can lower interest expenses by having a high credit score.
Borrow from relatives: You can pay your deductible money by borrowing from relatives. This borrowing will speed up your car repair process.
Perhaps you understand it and are thinking, is there any motor insurance policy that waives deductible money? The answer is yes; the following question guides you on how.
What is a collision deductible waiver?
A collision deductible waiver (CDW) is an optional auto insurance policy under which the insurance company will waive your deductible if an accident occurs. This waiver is only applicable if an accident occurs due to an uninsured or underinsured driver’s fault.
For example, Eleanor is involved in a car accident with an uninsured Jasmine. Since Eleanor has a collision deductible waiver policy, she doesn’t need to pay the deductible.
On behalf of Eleanor, the insurance company will contact Jasmine’s insurance provider to recover the deductible money of Eleanor. This process is also called no deductible car repair because you get a car repair without paying deductible money.
In summary,
- Buying a collision deductible waiver with some extra money can save you financially.
- If you drive in a location where the uninsured or underinsured driver rate is high, then buying a collision deductible waiver policy is worthwhile.
Need help to differentiate between CDW &vanishing deductible. The following question will help you to find out the differences.
What does disappear deductible mean?
A vanishing deductible or disappearing deductible is an auto insurance feature that reduces your deductible based on safe driving. Vanishing deductible will continually lower your deductible up to the policy limit.
Say Oscar has bought vehicle insurance in Texas with an annual Premium of $2000. Below are the details:
- The deductible is $700 ($500 for deductible & extra $200 for disappearing deductible)
- The maximum lower limit of vanishing deductible is $1,00 (it could vary based on disappearing deductible policy)
- Up to 4 years, Oscar has no accident record
- Each year, the insurance policy reduces Oscar’s Deductible to $90
So, disappearing deductible=Deductible- vanishing deductible amount
=$7,00-$90×4
=$7,00-$360
=$340
In this phase, your mind may ask, will the deductible gradually be “zero.” The straight answer is no. Let’s understand it from the following scenario: Oscar has a safe driving record of up to 6 years. So, in 6 years, Oscar’s vanishing deductible will be $540 ($90×6), which reduces the $700 deductible to $160 ($700-$540).
If Oscar drives another year without an accident, his deductible will not be “zero.”
Since, $160-$90=$70<$100, so the insurance company will stop lowering your deductible from this point. Because each insurance company has a maximum lower limit, in this case, it is a $100 vanishing deductible.
Car accident is an unprecedented phenomenon. So, we can’t control damages & it is natural that sometimes damages become unequal with a deductible. Do you face this type of situation? If yes, then you are going to ask the following question.
What if the damage is less than deductible?
If damage is less than deductible, you have to pay the entire car repair cost from your pocket. The insurance company will only pay damage if it is more than deductible.
For example, Levi has a car damage worth $5,00 & he has a collision deductible of $800. In this situation, Levi has to pay $5,00 from his pocket because $5,00<$800.
But what will happen if Levi has a collision deductible waiver or the car repair cost is equal to the deductible, i.e., $8,00? Let’s see;
- The insurance company will not give a collision deductible waiver to Levi because auto damage is less than the deductible. The vehicle repair costs must be higher than the deductible to be eligible for a collision deductible waiver.
- If the auto repairing expense is equal to the deductible amount, then Levi can file a claim for damages. But it is wise to claim until the car repair expense is much bigger than the deductible. Let’s say Levi claims for car damage money; so first, he has to pay the deductible, then the insurance company will pay the remaining $0 ($8,00-$8,00). So, this is definitely not a logical financial decision.
If you check car insurance quotes, then you see deductible with a digit. Have you noticed it? If not, don’t worry; the following three questions will describe what does it mean.
What does a $500 deductible with full glass mean?
A $500 deductible with full glass means the insurance company will cover full glass repair expenses such as windshield, sunroof, or side windows. This coverage falls under comprehensive auto insurance, where first you have to pay your deductible, then the insurance provider will pay the remaining glass cost.
Say Archie’s car windshield is cracked in a hailstorm. He has a $500 deductible with full glass & the repairing cost would be $900. First, Archie has to pay a $500 deductible; then, the insurance company will pay the rest of the $400 ($900-$500).
What does a $0 deductible mean?
$0 deductible means you don’t need to pay any deductible to claim car damage. In the USA, a $0 deductible is highly expensive & only available on high-end auto insurance.
For example, you have a $0 deductible vehicle insurance & your car damage is $700. In this case, you don’t need to pay any deductible, & insurance company will pay you full $700 car damage.
50/50 fault accident deductible?
A 50/50 fault accident deductible is when an accident occurs; both drivers will share car damage equally. Usually, both drivers have to pay their respective deductible first; then, their insurance company will pay the remaining damage.
For example, Henry & Hazel are both equally liable for car collisions. Their car damage totals $3,000 & both have a $5,00 deductible.
In this case,
- First, Henry & Hazel will pay their deductible to file a car repair expense claim to their insurance company.
- The insurance company will assess the car damage & liability of each. If they are found equally responsible for car damage, then the insurance provider mutually pays each portion, i.e., $2,000.
50/50 is not a universal number & there are many situations where the percentage of responsibility can change. Let’s consider another situation.
In this case, say Henry is liable for 40% & Hazel is liable for 60%.
- First, they both have to pay their respective deductibles.
- The insurance company of Henry will pay $12,00 ($3,000×0.4) & insurance company of Hazel will pay $18,00 ($3,000×0.6) with deductible.
If you are here by reading the above article patiently, then you must be a serious reader. So, you have decided to buy auto insurance. Then, your next question could be the following one.
What is collision deductible?
A collision deductible is an amount of money that you have to pay before claiming car damage.
Usually, a lower deductible amount is good for a less valuable car, whereas a higher deductible is good for an expensive car. Before choosing a deductible, consider your financial condition, risk tolerance, driving history, peace of mind & car value.
For example, Lucy has bought a car & wants to choose the right deductible amount. She is a new driver & financially weak. The insurance company gave her the following two options:
Options-1:
- Deductible amount: $6,00
- Premium per annum: $14,00
So, total car claiming cost= premium per annum+ Deductible amount
=$14,00+$6,00
=$2,000
Options-2:
- Deductible amount: $4,00
- Premium per annum: $16,00
So, total car claiming cost= premium per annum+ Deductible amount
=$16,00+$4,00
=$2,000
Since Lucy is a new driver, she bears a higher car accident risk. Another factor is financial insolvency, so she needs savings to meet other essential expenses. If Lucy reduces accident risk by safe driving, then a $4,00 deductible would be more cost-effective. But if Lucy is involved in multiple auto collisions, then a $6,00 deductible would be a good fit because a higher Deductible covers more damages.
In short,
- Higher deductible =Lower premium amount, good for those who have a bad driving history.
- Lower deductible = Higher premium amount, good for safe drivers who want to lower financial burden.
I assumed that you had purchased car insurance & experienced your first car accident. So, your natural question would be the following one.
Do you pay the deductible before or after the car is fixed?
You have to pay your deductible after your car is fixed. The insurance company needs deductible money to estimate repair costs. So, you have to pay your deductible before claiming car damage from the insurance company.
Say, after an accident, Robert has taken his car to a repair shop. After inspection, the repair shop tells Robert that the total cost would be $4000.
Let’s see how the insurance company pays Robert $4,000.
- First, Robert has to pay his deductible, say $8,00, and then submit a claim file to the insurance company.
- If the insurance company finds Robert’s claim valid, then they will pay Robert the remaining $32,00 ($4,000-$8,00) check.
Mistake is a natural behavior of human action. You have bought auto insurance & after six months; you realize that you need to change your deductible limit. Have you faced similar circumstances? If the answer is yes, then your next question should be the following one.
Can I change my deductible after an accident?
No, you can’t change your deductible after an accident. You can change your deductible at the time of renewal, which is usually after one year.
Before changing your deductible, you must understand that a lower deductible will make a higher premium rate. Let’s see an example,
You have an auto insurance of $700 deductible with a $1,000 annual premium.
Condition-1:
- Lower deductible $7,00 to $4,00
- Premium increase from $1,000 to $12,00
Condition-2:
- Higher deductible $7,00 to $1,000
- Premium decrease from $1,000 to $6,00
Thus, you should assess your car risk appropriately before finalizing your insurance deductible amount. Otherwise, it could be problematic to balance deductibles with premiums to manage car damage.
Tax is an inseparable component of vehicle insurance in the USA & most insurance buyers miscalculate it. Are you looking for more clarification? If yes, then your next question could be.
Is vehicle insurance tax deductible?
No, auto insurance for personal cars is not tax deductible in the USA.
But below are some conditions where you can get an auto insurance tax deduction:
Entrepreneur or self-employed: If you use your car 50% for business & another 50% for personal use, then you can get a car insurance deductible for 50% business use. You can reduce your insurance premium by showing it as a business expense.
Health Expenditures: In the USA, you are eligible for vehicle insurance tax deductible if you use your car for medical purposes. Say you are using your car for doctor appointments or traveling for any type of traveling issues, then you can lower your premium by showing it as a medical expense.
Casualty and Theft: Car damage related to theft is deductible as a loss in America. So, you can get vehicle insurance tax deductible by showing it as a casualty loss.
Other professionals: Some professionals are eligible for vehicle insurance tax deductible in the United States, such as armed forces, performing artists, & government employees.
You are driving your 5-year-old favorite Honda Accord on the highway of Mississippi. Suddenly, you are hit by a bus & your car loses its usability. This type of accident is a common scenario, & you will face it today or tomorrow. Therefore, your last question should be the following one.
Total loss deductible waiver?
Total loss deductible waiver is an auto insurance coverage that waives your deductible money if your car becomes a total loss after an accident.
In the USA, the total loss deductible waiver rate is $5 to $15 per month. Some insurance companies waive the full deductible, & some waive up to 75% of deductible money if car repair costs more than the actual cash price.
Let’s understand it from a mathematical perspective:
- You have purchased total loss deductible waiver coverage with an extra $10
- Actual cash value is $10,000
- Total loss is $10,000 (car repairing expense)
- The insurance deductible amount is $12,00
Total loss without deductible waiver=Total repairing expense-deductible
=$10,000-$12,00
=$8,800
So, the insurance company will pay you after deductible=$8,800
Total loss with deductible waiver=Total repairing expense-deductible
=$10,000-$0
=$10,000
So, the insurance company will pay you after deductible=$10,000
Concluding Thought
Deductible is a crucial aspect of auto insurance that can lower your car repair expense. It is a financial security for your future car damage that you are going to face in the upcoming time.
Therefore, the correct deductible amount can give you peace of mind as well as help you understand the interplay between deductible and premium.
I hope, after reading this article, you can assess your car needs and be able to decide right deductible options.
Frequently Asked Questions (FAQ)
What is a deductible renter’s insurance?
A deductible renter’s insurance is the amount of money you must pay from your pocket before the insurance company pays for your car damage. Renters insurance deductibles limit could vary based on states, but usually, it ranges from $250 to $2,500.
Do you get your deductible back?
No, you don’t get back deductible in car insurance. A deductible is the amount that you must pay from your pocket before claiming car repair expenses from the insurance company.
What are 500 deductibles in auto insurance?
Five hundred deductibles in auto insurance means first you have to pay this $500 deductible; then the insurance company will initiate your remaining car damage. In short, you have an auto insurance policy of $500 deductible.
Recommended deductible for auto insurance?
The recommended deductible for auto insurance in the USA is $500. Usually, deductible for auto insurance depends on your budget, risk tolerance, vehicle value, & state requirements. But, a typical deductible for car insurance ranges from $500 to $1,000 in the USA.
States that waive the deductible for hit and run?
In the USA, car insurance deductible waives for hit and run in two states, namely, California
& Massachusetts. In California, the policyholder is eligible for deductible waives for hit and run under collision and comprehensive coverage. In Massachusetts, you get a waiver under collision coverage only.
Can I sue for my deductible?
Yes, if you can prove that you are not at fault for the car accident. Usually, this doesn’t happen & the legal procedure to get a deductible is very complex. Because you need clear evidence to back your claim, whether the at-fault driver falls under uninsured or underinsured, then Subrogation & many other procedures.
What is the deductible for a car warranty?
Deductible for a car warranty is the amount of money that you have to pay to claim repair expenses from the warranty company.
Say William has a $500 warranty deductible for car engine repairs. Suddenly, his car got an engine issue & needed $2,000 to repair. To claim warranty damage, first, William has to pay a $500 deductible; then, the warranty provider will pay the remaining $15,00 ($2,000-$5,00).
Disclaimer
The information provided in this article is just the author’s view & only for educational purposes. By reading this, you agree that the information is not car insurance advice. Do your research before buying auto insurance. Therefore, if you make any types of financial loss, FinanceIdeas.org will not be liable for it.
