How Do Insurance Deductibles Work?


Have you wondered before how insurance deductibles work? And does the amount affect the monthly premiums?

In simple insurance terms, a deductible or your out-of-pocket maximum is the dollar amount you commit to paying out-of-pocket before your insurance company pays you any benefits. You, as the policyholder, will pay toward your expenses after an accident, and then your insurer will pay the rest (up to your coverage limits).

Car insurance deductible example:

Say you have a deductible of $500, and you rear-end someone. If you are the at-fault driver, the coverage will come from your collision policy. If your damages are $2000, you the $500, and later the insurer will pay the remaining $1500.

Now let's say it was a smaller accident, and your damages were only $400. You would pay the full $400, and your insurance would not pay anything, because you did not reach the minimum deductible. It's not until you meet all the out-of-pocket expenses that insurance kicks in.

Deductibles only apply to insurance policies that cover YOUR vehicle (comprehensive and collision). They generally do not apply to liability claims, as liability protects someone else's car in case you're at fault in an accident.


Different deductible types (fixed vs. percentage):

A deductible can be a fixed amount or a percentage of the total cost of your claim. The example above uses a fixed deductible. This number is something you will agree upon with your insurance company before you sign your policy.

If your deductible is a percentage of the claim, it will be a lot less certain. If it is 20 percent, then the wreck where you only have $400 damage, you will only be paying $80. However, if you get into the larger wreck where your damages are $2000, you will be paying $400. So, this option is a bit of a risk.

High- vs. low-priced deductibles

It may seem like a good idea to choose a very low (cheaper) deductible, but keep in mind that a low deductible will mean a higher (more expensive monthly) premium. Yes, you will pay less out-of-pocket for your damages after an accident, but your regular premium payments will be higher.

If you select a higher deductible, your premium will be lower since you will be taking on more of a financial burden for your own damages in the event of an accident. Just remember, if you choose a high deductible, you need to have at least that much money saved in case you get into an accident and need to use your insurance for repairs.

How much is a deductible for car insurance?

Most car insurance deductibles are set at a fixed amount, as in the first car insurance deductible example above. The deductible you choose may not be the one your neighbor chooses, but most car insurance deductibles range anywhere between $250 to $1,000, sometimes going even higher.

When do you pay the deductible?

If you’re in an accident but are not at-fault, you could get the at-fault driver’s insurance company to accept responsibility and pay for your damages if you get directly in contact with them. This, however, can sometimes be a long process, perhaps months, which is why many drivers choose to pay the deductible for their own insurance company to start repairs as soon as possible. Then, the insurance company seeks reimbursement of the damages they covered for you from the at-fault driver’s insurance, as well as reimbursement of your deductible.

If you’re a victim of a hit-and-run, unfortunately, you’re on your own to figure out how to repair the car, as the other driver didn’t provide any information to you. If you have collision coverage, you will have to pay the deductible to start the repairs process with your own insurance company. For more information on what to do in a hit and run read more.

When filing a comprehensive claim; Remember, comprehensive insurance is designed to help cover damages to your vehicle that occur from accidents other than collision. Like collision insurance, comprehensive, requires for your deductible to be paid before your coverage will kick in to cover repairs.

Where to find your deductible:

If you already have an insurance policy, you can find the amount of your deductible on the main page of your policy, known as the Declarations Page. This is the most important part of the application, as you can find your deductible amount here, the types of coverage you have, their limits, and all of your personal information, which must be kept up to date. It is near the front of your policy.

Check to see what your deductible is, and if you have any trouble finding it or any other questions at all, call an Infinity agent at 1-800-INFINITY!

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