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What is a deductible?

A deductible is what you pay out of pocket to fix your car before your car insurance pays for the rest. 

How does a deductible work?

If you carry comprehensive and collision coverage on your car insurance, you will see a deductible listed on your policy as a dollar amount. When you file a claim, that's the amount you will pay to fix your car before your insurance company kicks in with the rest.

Let’s say your policy has a $500 deductible. Then one day, you run into a tree and your car repair bill comes to $1,200. You would pay $500 toward fixing your car, and your insurance pays the remaining $700. 

You’re probably already familiar with deductibles from your health insurance policy, but it’s important to understand auto insurance deductibles work a little differently. With auto insurance, you don’t have to meet an annual deductible before insurance starts covering your expenses; you would pay the deductible with each claim. 

When do you pay your deductible?

You only pay the deductible for repairs made to your own vehicle. However, you don’t pay a deductible for other vehicles involved in the collision, even if you are found at fault.

However, there are some exceptions to paying a deductible for damage to your vehicle. If another driver is found at fault for the accident, then their insurance company would pay for the damages and you will be reimbursed for your deductible.

Factors for choosing a deductible

Sometimes, people opt for a higher deductible because there’s a tradeoff: They pay less money for insurance premiums.

Alternatively, if you pay a higher deductible, you’re taking on some of the financial risk if you get into a crash. The insurance company recognizes this, so that's why your insurance premium is less.

But lower premiums do not necessarily make it a financially sound decision. If you’re choosing between two car insurance plans, or you’re just wondering if it makes sense to increase your deductible to save money, these are some factors and considerations.  

Can you come up with the money? The premium savings is always nice to have. But ask yourself, if you had a car accident next week, would you have $1,000 in cash to pay your deductible? And how likely are you to have it next month? Three months from now? If this would send you deeper into debt, a lower deductible may be a safer financial choice.     

What are the annual savings? If you’re choosing between two deductibles, do some quick calculations. How much will you save every year on premiums? Would these savings make a meaningful impact on your budget? This is where the value of your car can be a big factor. For example, newer vehicles are more expensive to replace than older vehicles. For that reason alone, you may see a big price jump in your premium if you go with the lower deductible.  

How long would it take to recoup those expenses? No one plans on getting into a car accident. But if you’re still leaning toward a higher deductible, think about this: How long would it take to recoup what you’ll spend on premium costs? If it’s just going to take you a year or two, the higher deductible may still be looking good. Otherwise, the lower deductible may make more sense.

What’s your risk? The insurance company has its own formula for calculating individual risks, but your lifestyle can help you decided whether selecting the higher deductible is worth it. Think about how you use your car. Where do you live? Where do you drive to? Where do you park? If you live in a quiet community with a brief commute to work, you may be comfortable with a higher deductible.

In the end, it’s your call. Be sure and talk to your ERIE agent to help you determine which plan is right for you.