Key facts
| Fact | Detail |
|---|---|
| Coverages that usually have a deductible | Collision and comprehensive (and PIP in some states) |
| Coverages that usually do not | Liability for damage and injuries you cause to others |
| Possible saving from raising the deductible from $200 to $500 | 15% to 30% on collision and comprehensive |
| Possible saving from a $1,000 deductible | 40% or more on those coverages |
| When you pay it | Each time you make a covered claim on that coverage |
| New Jersey PIP deductible example | A $2,500 PIP deductible cut the PIP premium by 25% in the state's guide |
What a car insurance deductible is
Your deductible is the amount you agree to pay toward a covered claim on your own car. If a covered repair costs more than the deductible, the insurer pays the rest, up to the policy's limits. If the repair costs less than the deductible, you pay all of it and the insurer pays nothing.
Deductibles normally apply to the coverages that pay for your own car:
- Collision pays for damage to your car from a crash with another vehicle or an object.
- Comprehensive pays for theft, fire, hail, flooding, falling objects and hitting an animal.
You can usually choose a separate deductible for each, and some drivers pick a lower one for comprehensive. Liability coverage, which pays for damage and injuries you cause to others, does not usually have a deductible.
In some no-fault states you can also choose a deductible on personal injury protection. New Jersey's buyer's guide gives an example of a driver choosing a $2,500 PIP deductible to get a 25% cut in her PIP premium.
An NAIC shopping guide points out that you pay your deductible whenever you claim on your own coverage, even when you were not at fault. If another driver caused the crash, you can often claim from their insurer instead, or your insurer may try to recover what it paid, including your deductible.
Deductible, limit and premium: three different numbers
People often mix up these three terms, and they move in different directions when you try to save money.
| Term | What it is | Effect of raising it |
|---|---|---|
| Premium | What you pay the insurer for the policy term | You pay more up front |
| Deductible | What you pay toward each covered claim on your own car | Premium goes down, your share of each claim goes up |
| Limit | The most the insurer will pay for a covered claim | Premium goes up, your protection goes up |
Raising a deductible and lowering a liability limit can both cut the premium, but they are very different risks. A deductible caps your extra cost at a known amount. A low liability limit can leave you owing whatever a serious crash costs above it. See liability coverage.
The trade-off: lower premium, higher out-of-pocket cost
Insurers charge less when you agree to pay more of each claim. You take on more of the small, frequent losses, and the insurer saves on paying and handling them. The NAIC sums it up: higher deductibles mean lower premiums, but you must be able to afford the deductible if you have a loss.
| Choice | Premium | What you pay after a covered claim | Best suited to |
|---|---|---|---|
| Low deductible | Higher | Less | Drivers with little cash saved, or who expect to claim often |
| Middle deductible | Medium | Medium | Drivers with some savings |
| High deductible | Lower | More | Drivers with a healthy emergency fund and a good record |
Triple-I's figures show how much the premium can move. Raising the deductible from $200 to $500 could cut collision and comprehensive costs by 15% to 30%, and a $1,000 deductible can save 40% or more. Your own saving depends on your insurer, car and record, so ask for quotes at several deductible levels.
Break-even: how long before a higher deductible pays off
The simplest way to compare deductibles is to ask how many claim-free years it takes for the premium savings to cover the extra amount you would pay in one claim.
Example: suppose raising your collision deductible from $500 to $1,000 lowers that coverage's cost by $100 a year. These are made-up round numbers to show the arithmetic only.
- Extra you would pay in one claim: $1,000 minus $500 = $500.
- Yearly premium saving: $100.
- Break-even: $500 divided by $100 = 5 years.
If you go more than 5 years between collision claims, the higher deductible comes out ahead. If you expect to claim more often than that, the lower deductible may cost less overall. Use the real quotes your insurer gives you in place of these numbers.
Running the numbers with real quotes
- Ask your insurer (or a competitor) for the price of collision and comprehensive at two or three deductible levels.
- Subtract the higher-deductible price from the lower-deductible price to get the yearly saving.
- Subtract the lower deductible from the higher one to get the extra cost per claim.
- Divide the extra cost per claim by the yearly saving. The answer is your break-even in years.
- Compare that with how often you have actually claimed in the past.
Our deductible chooser does this arithmetic for you.
Your emergency fund and your deductible
The break-even only matters if you can actually pay the deductible when the time comes. The Consumer Financial Protection Bureau describes an emergency fund as cash set aside for unplanned costs, and lists car repairs as a typical example. It does not set a single target amount; it suggests basing the goal on the unexpected costs you have had before.
A practical test: if your car were damaged tomorrow, could you pay the deductible from savings without missing a bill or putting it on a high-interest card? If not, a lower deductible may cost more in premium but protect your budget.
Some drivers raise the deductible and put the premium saving straight into an emergency fund. Over time the fund grows to cover the higher deductible, and the saving keeps coming.
Other things that affect your deductible choice
- Your car's value. On an older car worth little, a high deductible can leave collision paying almost nothing. Triple-I suggests that if the car is worth less than 10 times the premium for the coverage, buying it may not be cost effective. See reviewing your coverage.
- Your lender or lease. A lender or leasing company may set a maximum deductible in the loan or lease contract. Check before you raise it.
- Your claims habits. The NAIC notes that if a repair costs not much more than your deductible, you may prefer to pay it yourself rather than claim. A higher deductible makes that choice for you on more small repairs, which can also help you avoid a rate increase after a claim.
- Glass claims. The NAIC notes some companies waive the deductible for windshield repairs. See windshield and glass claims.
- Where you live. If hail, flooding or theft is common in your area, you may claim on comprehensive more often, which can favor a lower comprehensive deductible.
How to pick your deductible in five steps
- Check your savings. Note how much cash you could spend tomorrow on a repair without hardship.
- Set a ceiling. Rule out any deductible above that amount.
- Get prices for each remaining level. Ask for the collision and comprehensive cost at each deductible you could afford.
- Work out the break-even. Divide the extra cost per claim by the yearly saving for each step up.
- Choose and review yearly. Pick the level that balances the saving with your claim history, and revisit it when your savings or car change.
Frequently asked questions
Is a $500 or $1,000 deductible better?
Neither is right for everyone. A $1,000 deductible usually means a lower premium, and Triple-I says it can save 40% or more on collision and comprehensive compared with a $200 deductible. It is the better choice only if you could pay $1,000 after a crash without hardship.
Do I pay a deductible if the accident was not my fault?
If you claim on your own collision coverage, you usually pay your deductible first. If the other driver's insurer accepts responsibility, it may pay for your repairs directly, or your insurer may recover the money, including your deductible, from them.
Does liability insurance have a deductible?
Usually not. Liability coverage pays for damage and injuries you cause to other people, and the deductible normally applies only to the coverages for your own car, such as collision and comprehensive.
Can I change my car insurance deductible at any time?
Usually yes, mid-term or at renewal, though the new deductible applies only to losses after the change. New Jersey's buyer's guide says drivers there can change coverages at any time and get a refund of unused premium within 60 days if the change saves money.
Do I pay the deductible for every claim?
Yes, generally for each separate claim on collision or comprehensive. Two unrelated incidents usually mean two deductibles.
Is a higher deductible worth it if I rarely claim?
Often, yes, provided you can afford it. If you go many years without a claim, the premium savings can add up to more than the extra you would pay in one claim. The break-even calculation above shows how many years that takes.
Sources
- Insurance Information Institute, Nine ways to lower your auto insurance costs deductible savings and older cars
- NAIC, A Consumer's Guide to Auto Insurance how deductibles work, affordability and windshield repairs
- NAIC and Mississippi Insurance Department, A Shopping Tool for Automobile Insurance paying the deductible even when not at fault
- Consumer Financial Protection Bureau, An essential guide to building an emergency fund what an emergency fund is for
- New Jersey Department of Banking and Insurance, Auto Insurance New Jersey Buyer's Guide PIP deductible example and changing coverage
Last reviewed by the StateCover Guide editorial team. See our editorial policy. Spotted an error? Tell us.