How to choose a car insurance deductible

What is a car insurance deductible?

A car insurance deductible is essentially the amount that the policyholder pays towards a claim settlement. After the policyholder has covered their deductible, their insurer will pay the remainder of the claim settlement—the cost to repair the vehicle or cover damages. An example follows.

Let’s say your car insurance policy has a collision deductible of $1,000. Your vehicle is in a collision that results in $3,000 worth of damage to the vehicle, and that damage is covered by your policy. When you make an insurance claim, you would need to pay the first $1,000 of the repair costs (the deductible). Your insurer would pay the remaining $2,000.

Typically, you don’t have to pay a deductible if you’re in an accident for which someone else is at fault (but we’ll get into that further down the page).

Deductibles are a form of risk sharing between insurance companies and their customers. When you choose a higher deductible, you are committing to pay a larger portion of any claims yourself—you’re taking on more risk. In exchange, the insurance company will charge you lower premiums.

When you buy a car insurance policy, you’ll be able to choose from several deductibles. Depending on the province and the insurance provider, deductible options usually range from $200 to $5,000—sometimes they’re even zero.

Types of car insurance deductibles

Often, one policy will have multiple deductibles. Only one deductible will apply to any given claim, depending on the type of coverage involved. Let’s look at different types of car insurance coverage and how deductibles work for related claims.

Comprehensive coverage deductibles

Comprehensive coverage protects against damage to the vehicle caused by events that aren’t collisions. If you make a claim for damage that falls under comprehensive coverage, you will have to pay your deductible before the insurance company pays the remaining amount.

Comprehensive claims usually deal with no-fault situations, like damage from weather or theft of the vehicle. (Of course, it would be the thieves’ fault that the car is stolen, but that’s not really what “fault” means in car insurance—fault only applies to traffic accidents.) The policyholder is almost always responsible for covering the deductible with comprehensive claims.

Many car insurance policies include glass coverage within comprehensive coverage. Some providers offer zero-deductible glass repairs, which means the policy will pay the full cost of windshield repairs. Alternatively, some policies cover the cost of repairing small chips and dings, but larger windshield repairs are still subject to the deductible.

Collision coverage deductibles

Collision coverage protects against damage to the vehicle when it collides with another vehicle or some other object, or when it rolls over. In the event of a collision claim, the policy deductible will apply.

However, collision claims often include a fault determination. That means that one or more drivers involved will be deemed responsible for the accident. You can be anywhere from zero to 100 percent at fault for an accident (though multiples of 25 are standard). The percentage of your fault will be the percentage of repair costs you’ll need to claim against your collision coverage.

Collision claims can get complicated, and things work a little differently from province to province. Many provinces have a no-fault insurance system (such as direct compensation for property damage, or DCPD). Under DCPD, you’ll deal only with your own insurer in the event of an accident for which someone else is at-fault.

In any case, you need to pay your deductible when you make a collision claim. The only exception is if you are zero percent at fault. If you were entirely blameless in the accident, you may not need to pay your deductible—your insurance company will try to recover the full cost from the at-fault parties. However, this isn’t always guaranteed to be successful, so your deductible may still be payable.

If you are at fault for an accident, whether 25 or 50 or 100 percent, you’ll need to pay your entire deductible before your collision coverage pays for remaining repairs. You could also be responsible for paying the repair costs of others involved in the accident, though your insurance policy would also help with those costs.

That brings us to the next coverage: liability.

Liability deductibles

When you’re responsible for an accident, you may be found liable for damage to property or injury to another person. There’s typically no deductible for liability coverage on car insurance policies.

Being liable for an accident means you’re legally responsible for the damage or injury, and you need to pay associated costs. That ranges from the cost of repairing someone else’s car to covering their medical rehabilitation costs. Naturally, such costs can be well beyond what the average person can afford.

That’s why liability coverage is mandatory on all car insurance policies in Canada. Liability coverage helps cover the cost of legal expenses and damages when you’re deemed at-fault for an accident.

Disappearing deductibles

Disappearing deductibles are an optional add-on offered by some insurance providers. The idea behind a disappearing deductible is that your deductible amount decreases every year, as long as you don’t make any claims against your policy during that year. Sometimes disappearing deductibles can even drop your deductible to zero after a few years.

If you make a claim, your disappearing deductible will reset to the original amount.

Not every provider offers disappearing deductibles. If yours does, it’s an option for safe drivers to save money while also maintaining a low deductible on their car insurance policy.

Other types of deductibles

There are other types of coverage available on car insurance policies. Most of the time, they’ll require a deductible before coverage kicks in.

For example, there are coverages like specified perils, all perils, uninsured motorist, accident benefits, and more. Many of these will require the policyholder to pay a deductible if they’re at fault for the loss.

Choosing the right deductible amount

When you buy a car insurance policy, you’ll be able to choose a deductible. You may even choose more than one, depending on the provider and the coverages you select. For example, it’s common for a policy to have separate deductibles for collision and comprehensive coverages.

Choosing your deductible isn’t as intimidating as you may think. To start with, there are usually only a few options, ranging from $200 to around $5,000. Some providers offer much higher deductibles, though.

Choosing a deductible is ultimately a balancing act between your budget and your risk tolerance. A high deductible lowers your premiums, but it also leaves a higher portion of the risk with you—you’d need to pay that much more when you make a claim. On the other hand, choosing a low deductible will cost you more in premiums, but you’re transferring a greater degree of risk to your insurer.

To decide which deductible is best for you, there are a few things you should consider:

What’s the vehicle’s value?

If you drive an old vehicle with very little cash value, a high deductible may render some of your car insurance coverages less useful.

For example:

Pretend you own an old sedan that’s only worth about $2,000.

You get into a minor collision for which you are at fault. The cost to repair your sedan’s headlight and fender will be $2,500—making this a total loss (or write-off). Since you had collision coverage, your insurer would offer you a settlement based on the cash value of the car: $2,000.

Now, if you had a $2,000 collision deductible, you would get nothing, because you’d need to pay the first $2,000 of the claim—your deductible.

On the other hand, if you had a $500 collision deductible, you’d get a $1,500 settlement for your written-off sedan.

Of course, for vehicles which have depreciated heavily, sometimes it’s worth dropping collision and comprehensive coverage entirely (as long as you’re okay with paying for repairs yourself). That being said, comprehensive coverage (which coverage losses like theft, water or fire) is often very inexpensive and has low deductibles, so it often makes sense to buy comprehensive coverage even on an older car. Collision coverage may not be economical, but comprehensive coverage can be of great benefit if the car is stolen, for example.

Assuming your vehicle is newer and more valuable, you still get reasonable coverage with a $2,000 deductible; a total loss of a $20,000 car could still get you $18,000 of coverage from your policy. It’s just important to remember that you’ll still have to pay that deductible if you make a claim, which brings us to the next point:

How much can you afford to pay for a claim?

When you make a claim, whether it’s for a $20,000 write-off or a $1,500 cosmetic repair, you’ll need to pay your deductible.

Accordingly, it’s important to choose a deductible that you can actually afford. Otherwise, many of your policy’s coverages won’t be particularly useful to you. While you may save money on your premiums by having a high deductible, you may find yourself in a bind if you’re in an accident and can’t afford to pay the deductible.

So, when you’re choosing a deductible, consider the options available to you and think about how you’d feel paying each one if your car were damaged. Part of choosing the right deductible is knowing how that potential cost fits into your overall budget.

How does the deductible affect the premium?

It’s no secret that choosing a higher deductible results in a lower premium. The question is: how much lower?

Imagine you’re deciding between a $1,000 and a $2,000 deductible. If the difference in premium between these two options is only a few dollars per month, it’s probably worthwhile taking the lower deductible. On the other hand, if the price difference is significant, the savings may be worth the additional risk. One helpful rule of thumb is: unless you are able to save the difference between a lower deductible and a higher one in three years or less, then the higher deductible may not be the safest option.

If you’re buying your car insurance online (like from Square One), it’s easy to play around with deductible selections and see how the premium changes with each.

What’s the likelihood of making a claim?

Speaking of risk, you can also think about the chances that you’ll actually need to use your insurance policy.

If you drive often and on high-traffic roads (like commuting to work on the highway every day), you’re more likely to be in an accident than if you almost never drive. With that in mind, the price of a lower deductible might be worth your while. Not that traffic accidents are inevitable, but it only takes one serious accident to make that low deductible beneficial.

If you only use your car for occasional weekend drives up to the cottage, you might feel better with a high deductible. You’ll pay lower premiums, and the odds of an accident are lower simply because you spend less time on the road.

If your provider lets you choose separate deductibles for collision or comprehensive coverages, you can apply the same thought process to each. You may feel like the risk of a collision is high (and choose a low collision deductible) while the risk of theft or vandalism is very low (and choose a high comprehensive deductible).

Ultimately, there’s no one-size-fits-all answer to car insurance deductibles. If you’re unsure, you can always discuss it with your car insurance provider. Hopefully, now you can understand how to decide the right deductible for your own situation.

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