When it comes to car insurance, two common questions we receive are ‘what is a car deductible?’ and ‘when do I have to pay it?’ 

To assist others who may be curious, we have answered these questions while also providing some additional context to help you make the right decision when selecting a deductible amount for your vehicle 

What is a deductible anyway? 

Simply put, a car insurance deductible is the part of an insurance claim you pay. For instance, if your deductible is $1,000 and your auto claim is for $5,000, you would pay $1,000 and the insurer would pay $4,000. 

Why do deductibles exist? 

There are two main reasons deductibles exist in an insurance policy.  

The first reason is so that you, the client, are encouraged to also protect the insured asset. Realistically, most people will aim to keep their vehicle safe,regardless of whether there is a deductible or not. However, it is shown that without a deductible in place we are usually a little less careful with the assets we own. In insurance, this this also known as a moral hazard. 

The second reason is that it helps to keep costs down for everyone. If there wasn’t a deductible, we would be more likely to put in more claims with the insurance carrier. If every small dent and little scratch was claimed on insurance, the cost to the insurance companies to manage this would skyrocket. To make up that gap in expense, insurance companies would be required to increase premiums. 

In these ways, the deductible actually helps greatly reduce the cost of insurance for everyone. 

How do car insurance deductibles work? 

When you file a claim, you are responsible to cover the policy’s stated deductible. If there is a total loss on your vehicle valued at $50,000 and your deductible is $1,000 the insurance company will pay you $49,000. 

In some instances, if you are not at fault for the damage, the insurance carrier may waive the deductible. This is something to discuss with our team of insurance brokers when choosing the right insurance company to protect your vehicle. 

How does the deductible affect the premium I pay for car insurance? 

The higher the deductible, the lower your insurance premium. The reasons for this include (1) you are willing to cover a bigger piece of any loss that occurs;(2) there is a slightly lower chance of making a smaller claim and(3) you are more likely to take additional precautions to ensure your vehicle remains safe. 

When choosing a deductible for your vehicle, first see how different deductibles will affect the premium you pay. You may be surprised that it does not cost a lot more in premium to have a lower deductible applied to your account. 

After finding out how the deductible amount will change the premium you pay, it is important to ensure you can cover the deductible should something happen to your vehicle. If you have a $2,000 deductible and have an accident, you may not want to have to take out a loan just to have your car repaired through insurance. 

The deductible is one way to save on insurance premiums but there are others. Check out some other great ideas to save on car insurance. 

When do I have to pay my car insurance deductible? 

This is an important question as some believe they need to pay their deductible when filing the claim.  Your deductible will be applied only when the insurance company issues the payout. The insurance company will simply reduce the payout by the amount of your deductible.  

For instance, if your car has a claimed loss of $10,000 and your deductible is $500 the insurance company will issue a cheque for $9,500. 

Let us help you choose 

Reach out to our team, give us a call at 1-800-661-5196 or fill out the form here to start a conversation. We are happy to provide knowledge and advice to help you make the right decision for you and your situation. 

Get an insurance quote today