The whole point of paying for auto insurance is so that you don’t have to shell out tons of cash if you get into a fender bender, right? So why is the shop telling you that you’re going to have to pay up before they fix your vehicle?

What Is a Deductible?

An auto insurance deductible is the amount that you pay out of pocket for damages to your vehicle before your auto insurance company covers any accident-related expenses. Different auto insurance companies offer different deductibles, which customers select when they’re signing up for an auto insurance policy. Depending on the insurer, deductibles may be as low as $0 or as high as $2,500 or more. A $500 deductible seems to be a very average deductible many people select.

Understanding Your Auto Insurance Deductible

It’s important to note that deductibles are charged on a per-claim basis. If your vehicle is vandalized and then, on your way to the body shop, you are in a collision, those would be filed as two separate claims and would, therefore, have two separate deductibles.

Typically, deductibles are only applicable to collision coverage and comprehensive coverage. Collision coverage pays out if you’re responsible for a collision, comprehensive coverage pays to repair damage from fallen tree limbs, vandalism, fire, theft, and other covered losses that are not accident related. Liability coverage, which pays for bodily injury damages that you may cause if you are found responsible for a collision, generally does not have a deductible.​

Choose Your Deductible Wisely

When signing up for your auto insurance policy, you selected a deductible. This is the amount of money that you pay towards your repair costs in the event of an accident. In other words, say that your car sustained $3,000 of damage and you have a $500 deductible. You’ll pay that $500, and your insurance will cover the rest.

The reason for the deductible is for you to have some skin in the game, to reduce overall, the number of total claims, and for the insurance company to “cost-share” some of their losses.

Generally speaking, the higher your deductible, the lower your premium. If you have a $1,000 deductible, you’re less likely to file an insurance claim, making you less risky to insure. That high deductible/low premium comes with a price though; namely, the price of your deductible. So, if you choose a $2,500 deductible because you like the low monthly premium, and you get into an accident that requires $2,500 in repairs, you’ll pay for every dime of it out of your own pocket.

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Choosing the Right Auto Insurance Deductible

When your auto insurance agent is helping you build your auto insurance policy, it’s often tempting to focus on the monthly premium and skimp on coverage to keep that rate as low as possible. However, this approach can backfire when you actually need to file a claim.

Car accidents can happen in the blink of an eye, and whatever your deductible is, you should be able to pay out that amount at any given time. Sure, a $2,500 deductible may result in a lower monthly payment, but if you couldn’t pay out that $2,500 for an unexpected repair tomorrow, then your collision or comprehensive coverage may be virtually useless to you.

To keep your rate low, choose the highest deductible that you could comfortably afford. Obviously, coverage limits vary widely, and there is no one-size-fits-all approach for figuring out how much coverage you actually need. To determine whether you should increase or decrease your collision and comprehensive deductible, consider factors like:

• What type of vehicle you have and how old it is
• If you had an accident, could you afford the deductible at anytime
• How high of a premium can you afford to pay if your car was totaled
• Do you live in a densely populated area, increasing your risk of an accident
• How many miles per year do you drive
• What other drivers are in your household

Setting a lower deductible may cost you more upfront each month, but in the event of an accident, it can be a relief. On the other hand, if your vehicle isn’t worth much more than the cost of your deductible, then you may not want to pay for collision and comprehensive coverage for that vehicle.