When you get an auto insurance policy, you have to pay a premium — the amount of money charged for the coverage — on an annual, semiannual or monthly basis. But you might also have to pay different types of auto insurance deductibles when you file a claim.
Ben Rodriguez, the owner of a Brightway Insurance agency in New Orleans, explains that a deductible is an out-of-pocket amount you’re responsible for paying before your insurer covers a claim. Car insurance deductibles are typically a specific dollar amount, such as $500.
How do auto insurance deductibles work?
Your auto insurance deductible is tied to the kind of loss covered. We’ll address the types of auto insurance deductibles a little later. First, let’s look at an example of how a deductible works, courtesy of the Federal Reserve Bank of St. Louis.
Let’s say you’re driving your car and bump into a light pole. There’s no damage to the light pole, but your bumper is cracked.
The repair shop estimates it’ll cost $400 to fix the bumper. Your auto insurance deductible will be applied to the repair first.
For example, if your deductible is $250, you’ll pay $250, and your insurance company will cover the remaining $150 to fix the bumper. But if your auto insurance deductible is $500, you’d have to pay the entire repair bill.
What should your auto insurance deductibles be?
As the Federal Reserve Bank of St. Louis explains, you have to pay a higher premium to get a lower deductible. So, if the deductible for your collision coverage is $100, your premium will be higher than if the deductible for your collision coverage is $500.
“You have to decide if the higher premium is worth the lower deductible. Many people choose to pay a lower premium and pay the higher deductible in the event of an accident,” the Federal Reserve Bank says.
Rodriguez advises choosing deductibles that you can afford in case you need to file a claim.
Types of auto insurance with no deductibles
Nearly every state requires liability coverage — bodily injury liability and property damage liability. However, neither liability insurance nor medical payments coverage requires you to pay a deductible when making those types of claims.
Here are five different types of auto insurance deductibles that may apply to your policy:
Collision is optional coverage that pays for crash-related losses. It applies to situations including hitting another vehicle or object, such as a tree. If you file a collision claim, it typically comes with a deductible.
Comprehensive is optional coverage for damage dut to fire, flooding, hail, wind, vandalism, theft or hitting an animal. It typically comes with a deductible.
3. Uninsured motorist
Uninsured motorist is optional coverage that pays for injuries to you, or another person covered by your policy, caused by a driver who doesn’t have auto insurance. This coverage typically does not have a deductible.
4. Underinsured motorist
Underinsured motorist is optional coverage for bodily injury and property damage. It pays for injuries or property damage caused by another driver who, as spelled out in your policy, lacks enough insurance to cover your losses.
Underinsured motorist bodily injury coverage normally does not have a deductible, but underinsured motorist property damage coverage typically does.
5. Personal injury protection (PIP)
In some states, you’re required to carry personal injury protection, but in others it’s optional. It covers injury-related expenses that result from a crash, no matter who is at fault. It typically comes with a deductible.