What Is a Car Insurance Deductible?

A car insurance deductible is the amount an insured party pays to repair or replace a damaged vehicle before the insurance company begins covering the loss. The car insurance deductible is specified ahead of time in the auto insurance policy. The insured party determines the deductible's size.

Identification

Car insurance deductibles are applied to two types of automobile insurance: collision insurance policies and comprehensive insurance policies. Collision insurance covers the insured party's vehicle in the event of an accident. Comprehensive insurance covers the insured party's vehicle if something happens to it beyond the insured party's control. This includes theft, vandalism and weather-related damage.

Features

Both collision insurance policies and comprehensive insurance policies require the insured party to declare a car insurance deductible amount when getting the policies. The standard amount for a car insurance deductible is $500. This is what most car insurance agents suggest for collision insurance policies and comprehensive insurance policies. The insured party can raise or lower the deductible, however.

Effects

Raising or lowering the car insurance deductible on collision insurance policies and comprehensive insurance policies impacts the premiums. This is the amount the insured party pays to insure the automobile. The lower the car insurance deductible, the higher the insurance premiums. Many people choose to raise their car insurance deductible amounts so they can pay less for automobile insurance.

Function

When there is damage or loss to an insured party's vehicle, the car insurance deductible comes into play. The insurance company determines the cost to repair or replace the damaged vehicle. The company then deducts the deductible from that amount and pays the balance up to the policy's coverage limit. Sometimes the insurance company writes a check to the insured party. Other times, it compensates the repair shop directly. The insured party is not reimbursed for the deductible amount.

Significance

The purpose of the car insurance deductible is to discourage using automobile insurance policies for small claims. If the insured party has $700 in damages and a $500 car insurance deducible, he may decide not to file an insurance claim. The insured party would only get $200 from the claim and it may make his insurance premiums rise in the future.