Ask an Agent: How Do Auto Insurance Deductibles Work?

For many consumers, purchasing an auto policy is the first foray into the world of insurance, so it’s important to have a good understanding of deductibles and what they mean for your budget. Deductibles can be complex, so we’ve answered some of the most common questions to help you choose one that works for you.

What Is a Deductible?

In the simplest terms, a deductible is the dollar amount of a covered loss that you are responsible for if you have a car insurance claim. For example, if your car is in a hailstorm, and it will cost $6,500 to make repairs to your vehicle, and you have a $500 deductible, you would be responsible for $500 of the total amount of repairs. Common deductible amounts can range anywhere from $250 to $2,000, but the average car insurance deductible is $500, according to Car and Driver. There are two main auto coverages that have deductibles — comprehensive and collision:

• Comprehensive deductibles apply to damage or loss claims resulting from extreme weather, theft, vandalism and other non-collision events.
• Collision deductibles take effect if you run into something with your car, such as another vehicle, a house or a guardrail.

Is It Better to Have a High or Low Deductible?

Generally, if you assume more risk (by agreeing to pay more “out of pocket” costs with a higher deductible in the event of a claim), you will have lower insurance rates. A good deductible for car insurance is one you would be comfortable paying if an accident or some other sudden event happens. If a higher deductible makes sense for you, you have the potential to pocket the savings from lower monthly premiums, especially when you consider those years in which you do not incur any losses. Other things to consider include:

• Budget constraints. If you have a limited amount to spend on car insurance, you may want to opt for a higher deductible. As long as you don’t have any claims, you will pay less out of pocket.
• When and where you drive. Consider whether you typically drive in congested traffic, on the freeway at rush hour or in an area with severe weather. These things can all increase your likelihood of having to file a claim, so you may want to choose a lower deductible policy.
• Age and condition of your car. If you drive an old vehicle that’s worth less than $5,000, it wouldn’t make sense to have a $2,000 deductible. Ask your agent to help you determine what makes the most sense.
• Savings account balance. If you do opt for a high deductible, be sure you have enough set aside to cover the amount in case of a claim. Your insurance company will write a check directly to your mechanic minus the deductible cost, and if you do not pay the remainder of the balance, the mechanic can legally keep your vehicle.

How Can I Save Money on My Deductible?

When you have insurance through Farm Bureau Financial Services, your home and auto coverage may be insured under a single Member’s Choice policy. This means that if the hailstorm we mentioned earlier damaged your home as well as your car, you’re covered under one plan. With one policy, if you have a single event that causes damage to both your car and home, you only pay a single deductible. There are a variety of other ways to save on auto insurance rates, while still ensuring you have the protection you need. Contact your Farm Bureau agent to learn more about ways to save, while protecting your auto, home, life and property.