How Does a Car Insurance Deductible Work?

Choosing the right car insurance deductible can save you real money. Know your options before you sign a policy.

A red car is partially crushed by a fallen tree after a hurricane.
(Image credit: Getty Images)

A car insurance deductible is one of the most important elements of auto insurance coverage. Do you understand the four different types of deductibles? If you're buying a car or swapping insurance carriers, take a moment to consider what deductibles are best for you.

How do car insurance deductibles work?

A car insurance deductible is the amount of money the policyholder pays out of pocket toward an insured loss. It is deducted from the total claim amount. For instance, say the car insurance deductible is $500. If the car is damaged and the insurer determines the claim is worth $5,000, the insurance company would pay out $4,500 for the claim. 

Sound familiar? Car insurance deductibles are very similar to health insurance or home insurance deductibles.

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For each claim you make, you will pay a car insurance deductible. However, deductibles typically only apply to damage to your car if you are responsible. Deductibles do not apply for liability claims if you are found at fault for damaging someone else’s property or injuring another person. So, if a person is injured in a car wreck where you were driving and they file a claim against you, you would not pay a deductible.

What Are the Different Types of Deductibles? 

Deductibles usually are paid on claims that fall under four types of coverage in the car insurance policy.  

1. Collision

If you damage your vehicle in an accident where you are at fault, this damage is covered under your collision insurance. However, you will need to pay a deductible on the claim.  

2. Comprehensive

If your vehicle is damaged by something out of your control, your comprehensive insurance could pay for repairs. Examples include hitting a deer, backing into a lamppost or storm damage. This type of insurance also covers theft, vandalism and fire. These claims will incur a deductible.   

3. Uninsured or underinsured motorists

If someone without insurance or sufficient insurance coverage is found at fault for a car accident involving you, you may have to file a claim under your insurance policy. In that event, a deductible could apply under your coverage for underinsured/uninsured motorists depending on where you live. 

4. Personal injury protection (PIP) coverage 

In most states, the driver who caused a car accident is considered "at fault," and their insurance is required to pay for medical bills. But twelve states* operate under "no-fault" laws, meaning you are required to file bodily injury claims with your own insurance company through Personal Injury Protection (PIP). This type of insurance covers your medical expenses resulting from an accident, even if you are not at fault. Some no-fault states will allow you to opt out of PIP coverage.  

PIP coverage will also come with a deductible.

*The 12 no-fault states include Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah.

What is a good car insurance deductible?

Car insurance deductibles range anywhere from $100 to $2,000, with many options in between. The average car insurance deductible is $500. Determining a good car insurance deductible depends on your individual financial situation and driving history.  

How do you choose a car insurance deductible?

When choosing a car insurance deductible, take a close look at how much you could afford to pay for your premiums as well as a deductible if you file a claim. Generally speaking, the higher your premiums are, the lower your deductible is and vice versa. Therefore, look at your finances and decide how much you can afford to pay and when. 

For instance, if you have the money readily available, you could pay higher premiums and choose a lower deductible. That means if you do file a claim, you’ll pay less out of pocket for repairs. 

On the other hand, if money is tight, you may opt for lower premiums to pay up front, and choose a higher deductible on the policy. If going this route, it’s important to be prepared to pay more out of pocket if filing a claim. 

Other factors that might affect the overall cost of your car insurance include whether or not you have a good credit score, your age, where you live and your driving history.

Bottom line

Car insurance deductibles represent the policyholder’s out of pocket cost when filing a claim against their policy. Deductibles vary by policy, but could range between $100 and $2,000. Typically, the higher the insurance premiums, the lower the deductible will be, and vice versa. Policyholders should consider how much they can afford to pay out of pocket when selecting a car insurance deductible.  

Karon Warren
Contributing Writer

Karon writes about personal finance, including consumer credit, credit cards, mortgages, student loans and retirement, along with travel, small business and health care. Her work has appeared in U.S. News & World Report, LendingTree, USA Today’s 10Best, GoodRx and many others. Karon earned her B.S. In journalism with an emphasis on news editorial from the University of Southern Mississippi. A member of the American Society of Journalists & Authors, Karon released her first book, “100 Things to Do in the North Georgia Mountains Before You Die” (Reedy Press), in 2022.