How much would you have to pay out of pocket to repair or replace your car in the case of an incident? Comprehensive and collision insurance can help cover the costs of your car (not another party’s damages) in the case of an accident or other peril. Before your insurance steps in to cover the costs, though, you have to pay your deductible. But how much should your comprehensive or collision insurance deductible be?
Your deductible can have an effect on how much your policy costs. A low deductible generally means a higher premium, but you’ll pay less out of pocket. A high deductible, on the other hand, usually means a lower monthly payment but more out of pocket in the case of an incident.
So how do you choose which deductible will work for you? Let’s first review the basics.
What are collision and comprehensive insurance?
Both collision and comprehensive can cover the costs of damages to your own car, regardless of who is found at-fault for the accident. Whether you are responsible or not, your insurer will step in to pay for your property damage according to the coverage and limits on your collision/comprehensive policies.
Collision insurance helps pay for property damage caused by a collision, like an accident with another car or hitting a stationary object. Comprehensive coverage basically covers everything else, like vandalism, theft, fire, flood, animal collision, and natural disasters.
You can choose to purchase only collision, only comprehensive, both, or neither. Most people will bundle collision and comprehensive to ensure their cars are fully protected from an array of incidents.
Learn more about these policies with the following resources:
- Understanding Auto Insurance: What Is Collision Coverage?
- Understanding Auto Insurance: What is Comprehensive Coverage?
- Do I Need Comprehensive Coverage Car Insurance Or Only Liability?
- Common Comprehensive Claims And What To Do About Them
What do collision and coverage exclude?
Collision and comprehensive do not cover any liability. These policies will not cover any costs associated with damage or bodily injury to another party. That would fall under your auto insurance property damage liability or bodily injury liability.
Collision and comprehensive policies also will usually not cover:
- Typical wear and tear
- Mechanical or electrical failure, unrelated to an accident
- Custom equipment
- Personal belongings or contents within the car
- Intentional damage
- Criminal acts
- Destruction/confiscation of vehicle by law enforcement
- Damage caused by neglect
Are collision and comprehensive insurance required?
Collision and comprehensive insurance cover property damage to your own car, not another party, so they’re not usually required by law. Auto liability coverage is typically a state requirement to keep drivers safe, but this is in the case that you damage another person’s vehicle or person.
However, your lender may require collision and comprehensive if you lease or finance the car. This is how lenders ensure you’ll keep their assets safe and protected.
If you own your car outright, it’s up to you whether or not you purchase collision/comprehensive coverage. InsuraMatch advisors usually recommend both collision and comprehensive coverage in most cases, because it’s the best way to protect your car in the case of a serious incident. If you couldn’t afford to replace your car if it were to be totaled or stolen, then you definitely want to look into collision and comprehensive insurance.
What should my collision and comprehensive deductible be?
When you purchase collision and comprehensive insurance, there’s really only one decision you have to make: how much will your deductible be?
A deductible is how much you pay out of pocket for repairs or replacement before your insurance company steps in to pay the remainder (up to your coverage limits).
For example, you have a deductible of $100. Your car scrapes a tree, and it will cost $300 to repair your vehicle. You would be responsible for the first $100, and your collision coverage would pay the remaining $200.
It’s important to note that auto deductibles don’t work like “yearly” health insurance deductibles. Your collision and comprehensive deductible is applied per incident. If you had a $100 deductible, you would be required to pay $100 every time you file a claim.
So you have the choice to decide your deductible. Why does it matter, and which deductible should you choose?
In general, a lower deductible means a higher monthly or annual premium—but you pay less out of pocket in the case of an incident. A higher deductible means a lower monthly or annual premium.
A lower deductible means you would pay less if you made a claim. Thus, your insurance company would have to pay more for the claim, so they offset that cost with a higher premium. If you have a higher deductible, you assume more risk and the insurer pays less per claim, so they can offer you a lower monthly rate.
So should you go high or low?
Ask yourself the following questions to determine what kind of collision and comprehensive deductible might be right for you:
Can you afford to pay your deductible out of pocket?
If you file a claim, you are responsible for that deductible first and foremost. You have to be prepared to pay that amount if the time comes.
For example, if you have a $1000 deductible, you would be responsible for the first $1000 worth of damage every time you file a claim. If the damage to your car is only worth $800, you would pay the entirety of that cost without any help from your insurer.
Don’t make your deductible higher than you could pay out of pocket right now to repair or replace your car.
Want to lower your insurance premium without raising your deductible too much? Check out the 16 ways to lower your auto insurance premium here.
What is the value of your car?
How much would it actually cost to repair your vehicle based on its value?
More expensive cars are considered “riskier,” so they generally cost more to insure. If you own an expensive car, there’s probably a bigger cost difference when you raise your deductible. For example, a $500 deductible would have significantly higher premiums than a $1000 deductible.
Older, worn, or less valuable cars generally don’t have a huge difference in premium costs, so a high deductible might not be worth it. The cost to repair your car might not even equate to your deductible. For example, a $1000 deductible means you would have to pay any and all damages under $1000 out of pocket.
What are your risk factors?
There are some instances where you’re considered a higher driving risk, which means you have a higher chance of accident. You might want a lower deductible if you’re more likely to be in an accident (or repeated accidents). You’ll pay more each month for the risk, but the lower deductible would likely save you money by paying less out of pocket in the case of a claim.
What increases your collision risk?
- Driving during rush hour
- Driving on highly-traveled roads
- New or teen driver on policy
- Previous history of collisions
- Parking in lots with small parking spots or parking on street
What increases your comprehensive risk?
- Living in an area prone to natural disaster, like flood or hurricane
- Lots of animals in the area
- Living in an area with frequent crime
- Parking on the street as opposed to a garage or shed at home
Also consider your personal risk adversity. A higher deductible is a higher risk, while a lower deductible means more security. What are you personally willing to risk?
Are you getting both collision and comprehensive?
Collision coverage generally costs more than comprehensive coverage. When you buy both, you can offset the cost of one with a higher deductible with the other. For example, you could have a high deductible for collision and a low deductible for comprehensive. That would lower your collision premiums while still keeping you covered for “acts of God” incidents. However, it also means you’d pay more out of cost in the case of an accident.
For simplicity’s sake, though, it’s usually easiest to have the same deductible for both policies.
If you’re considering both collision and comprehensive, talk to your agent about how to balance and bundle these deductibles and premiums in the most cost-effective way.
Overall, you want to consider your risk for an incident, the ability to pay your deductible out of pocket, and how much the difference in deductible versus premium would actually save you.
You can learn more with this article: Should I Have A $500 or $1,000 Auto Insurance Deductible?
Don’t want to do the math or comparison shopping yourself? We don’t blame you. Work with one of our insurance advisors to save the headache and find the best policy and deductible for you. Our agents will help you shop for comparable quotes from several qualified insurers. We’ll guide you in weighing your deductible-premium ratio along with your risk statement.
Let us make shopping for your auto insurance a breeze. Call us today at (844) 819-2221!
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