How to choose a deductible

A deductible is the simplest lever on an auto policy and one of the most misunderstood. Raise it and the premium drops; lower it and the premium rises. But the right setting depends on your savings, the value of your car and how the deductible actually gets applied in a claim, which is not always the way people expect. This guide explains where deductibles show up, when you pay them and when you don't, and a practical way to choose one.

What a deductible is, and where it applies

The deductible is the amount subtracted from a covered claim payment. If a covered repair costs more than your deductible, you pay the deductible and the insurer pays the rest, up to the coverage limit. If the repair costs less than your deductible, there's nothing for the insurer to pay and no reason to file a claim.

Deductibles apply to the coverages that pay for your own car and, in some states, to some of the coverages that pay for you:

• Collision always carries a deductible, chosen when you buy the policy.
• Comprehensive carries its own deductible, which can be set differently from collision.
• Uninsured motorist property damage and personal injury protection may carry deductibles depending on the state and the policy.
• Liability has no deductible. It pays other people, and you never pay the first part of someone else's claim.

How it works in a claim

In a total loss, the deductible is subtracted from the car's actual cash value. If the car is worth $9,000 and your deductible is $1,000, the settlement is $8,000 before any amounts owed to a lender.

When you won't pay it

If another driver is at fault and their insurer accepts responsibility, their property damage liability coverage pays for your car and there's no deductible on your side. Many people instead use their own collision coverage to get the repair moving quickly, pay the deductible, and let their insurer recover the money from the at-fault insurer. When that recovery succeeds, the deductible is refunded, though it can take months, and in shared-fault situations only part of it may come back.

A few states require insurers to replace windshields with no deductible under comprehensive coverage, and many insurers sell a separate glass option that waives the deductible for glass claims.

The trade-off

Insurers price a lower deductible higher because they expect to pay more small claims. Raising your deductible saves premium, but with diminishing returns: the first step up usually saves the most, and each further step saves less. The saving also differs by insurer and by car, so ask for the premium at two or three deductible levels when you get quotes. Then compare the yearly saving with the extra amount you'd pay in a claim. If raising the deductible by $500 saves very little per year, the higher deductible is probably not worth the exposure. If it saves a meaningful amount and you'd go years between claims, it likely is.

A practical way to choose

Three questions settle most cases:

1. Could you pay this amount next week without borrowing? A deductible you can't cover on short notice is the wrong deductible, whatever it saves. Your emergency savings set the ceiling.
2. How much does each step save? Get the actual premium difference from the insurer. Divide the extra deductible by the yearly saving to see how many claim-free years it takes to break even.
3. What is the car worth? On an older, low-value car, a high deductible can leave collision coverage paying very little in the worst case. If the car's value minus the deductible is a small number, consider whether collision coverage is worth carrying at all.

Remember also that filing small claims often raises rates at renewal, so many people set a deductible high enough that they'd never file for minor damage anyway.

Different deductibles for different coverages

Collision and comprehensive deductibles don't have to match. Comprehensive claims, such as hail, theft or a cracked windshield, are often out of your control and more frequent in some regions, so people in hail or high-theft areas sometimes keep a lower comprehensive deductible and a higher collision one. Others do the opposite. Look at what's likely where you live.

Features that change the math

Some insurers offer a disappearing or diminishing deductible that shrinks for each claim-free year, usually for an added premium. Full glass coverage removes the deductible for windshield and window claims. A lender may impose a maximum deductible on a financed car, and gap coverage may or may not cover the deductible in a total loss. Check each of these against your own policy language rather than assuming.