How Does a Car Insurance Deductible Work?

Buying auto insurance is an essential part of being a responsible car owner. Most states require you to buy a certain minimum level of liability insurance to pay for damage you cause in accidents that are your fault. Many drivers choose to buy extra coverage to pay for damage to their own vehicles. If you are involved in an accident, you usually have to pay an upfront cost called a deductible before the insurance company covers the rest of the costs.

Deductible Basics

An insurance deductible is a cost that insurance companies sometimes require policyholders to pay to receive compensation for losses and expenses covered by an insurance plan. For example, if you have a $500 deductible on collision insurance for your car, you have to pay $500 out of your own pocket when you get into an accident before your insurance company pays anything. Deductibles are common in auto insurance and other types of insurance plans, like health insurance and homeowner's insurance.

Deductibles and Premiums

Deductibles shift some of the burden of paying for damage and expenses to insurance policyholders. In other words, deductibles make it cheaper for insurance companies to offer insurance plans. Insurance companies typically allow you to choose from several different auto insurance plans that have different terms and deductibles. Plans with high deductibles tend to cost less than plans with low deductibles. Choosing a plan with a high deductible can save you money on your insurance premiums, but it can be more costly if you get in an accident and have to pay the deductible.

Making Claims

When you have an accident, you must make an insurance claim before you receive any money. A claim is an official request for compensation under the terms of your insurance plan. Deductibles discourage small insurance claims, since you can only receive compensation for damage that exceeds your deductible. For example, if you get into a minor fender bender that causes $900 of damage and you have a $1,000 deductible, there's no reason to make an insurance claim since the damage doesn't exceed your deductible.


Insurance deductible rules can vary from one car insurance company to another. Some companies may offer plans with no deductibles, but no-deductible plans are likely to have higher premiums than plans that have deductibles. Sometimes plans charge deductibles for certain types of damage and no deductibles for others. For example, an insurance company might give you the option of choosing a plan where you don't have to pay a deductible for damage to your car's windows.

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