policies come with deductibles—fixed amounts that you must pay out of pocket before your insurance coverage kicks in on a claim. Your deductible is subtracted from your

total claim payout

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Deductibles 101: What are they and how do they work?

Many types of insurance, from auto and health insurance to renters and homeowners insurance, come with deductibles—but a “deductible” means something slightly different in every case.

How car insurance deductibles work: If you file a claim on car insurance coverage that has a deductible, your deductible will be subtracted from your claim payout. For example, if you filed a collision claim for $2,300 of damages on a policy with a $500 collision deductible, you would receive a reimbursement check for $1,800 from your insurance provider when the claim is approved.

Unlike health insurance, your auto insurance policy doesn’t come with an annual deductible. Instead, you’re responsible for the same deductible amount any time you submit a claim.

The most common car insurance deductibles are $500 and $1,000. A lower deductible makes it easier to file a claim without steep out-of-pocket costs, but you’ll pay more to maintain your policy. A higher deductible, on the other hand, reduces the overall cost of coverage but raises the amount you’ll have to pay when you file a claim.

Before you pay your deductible:

Get an estimate of the repair costs for any covered damages.

Subtract your deductible from the total estimated cost of repairs.

If the repairs cost significantly more than your deductible, reach out to your insurance company to file a claim.

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Which types of car insurance have a deductible?

The most common types of car insurance that have a deductible include:

Collision coverage

, which covers repairs to your vehicle after a car accident

Comprehensive coverage

, which covers physical damage to your car from something other than an accident, like vandalism or severe weather

Personal injury protection (PIP)

, which covers medical expenses and lost wages for you and your passengers after an accident

Uninsured motorist property damage coverage (UMPD)

, which covers car repairs from an accident with an uninsured driver

The most common type of coverage without an auto insurance deductible is
liability coverage
, which covers medical bills and vehicle repairs for other drivers when you’re at fault in an accident.
Uninsured/underinsured motorist coverage (UM/UIM)
and
medical payments (MedPay
also typically come without a deductible.

How do deductibles affect your car insurance premium?

Car insurance companies tend to charge more for policies with low deductibles, a common practice in the insurance game that can really bump up the overall cost of your coverage.

When you're comparing insurance quotes, it's a smart move to check out the gap between the two options you receive – it can seriously affect how you make your insurance decision and manage your budget.

Both quotes are from the same company and include the same amounts of coverage.

But the first policy has $250 deductibles for comprehensive and collision coverage and costs about $28/month more than the second policy, where we raised the collision and comprehensive deductibles to $1,000 each.

On average, raising your deductible can

reduce your car insurance rates

by 10 to 25%. You’ll see the biggest change when raising your deductible from $250 to $500, or from $500 to $1,000. Once your deductible is at least $1,000, raising it will only make a small impact on your premium.

If you’re comfortable with higher out-of-pocket costs in the event of an accident but want to save money overall, go with a higher deductible, such as $1,000.

If you want to keep your out-of-pocket costs low and don’t mind paying a little extra, choose a low deductible—$500 or less.

Learn more:

10 essential car insurance hacks to lower your rate

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FAQs

Is it better to have a $500 or $1,000 deductible?

With a $500 deductible, it’s cheaper to make a claim on your car insurance—but you’ll pay a higher premium. A $1,000 deductible comes with lower premiums, but you’ll have to pay the full $1,000 out of pocket before you can make any claim on your coverage.

What is a deductible on car insurance?

In the world of car insurance, a deductible is the amount that a policyholder agrees to pay out of pocket before their coverage kicks in. Not all car insurance comes with a deductible, but collision, comprehensive, and PIP coverage all do.

What does it mean when you have a $1,000 deductible?

If your car insurance has a $1,000 deductible, you must pay $1,000 before the coverage that has the deductible kicks in. For example, if your car was damaged in a collision and you have a collision deductible of $1,000, you’d be responsible for $1,000 of damages and insurance would only pay for the remainder—meaning that you’d only be able to file an insurance claim for damages exceeding $1,000.

What is the difference between a deductible and the amount of coverage a person has?

Your deductible is the amount you agree to pay out of pocket before getting coverage on a claim—but your coverage limits are typically much higher. Your collision insurance will cover the actual cash value of your vehicle, which is likely much higher than the average collision deductible of $500.