What is a car insurance deductible?

So, auto insurance is there to protect your bank account, right? It’s going to bail you out of a major financial loss if something happens to your car. You have collision and comprehensive coverage because you don’t want to have to pay for repairs if something happens to your car. But there’s this thing called a deductible…which sounds nefarious. What is a deductible? We’ll explain.

What is a car insurance deductible?

A deductible is the amount you agree to pay towards an insurance claim if something happens to your car and you need to file a claim. Wait – I have to pay money? Isn’t that what car insurance is for?

Well, yes, but you have to pay your deductible if it applies. Think of it like this: you have your chunk of the insurance claim (which you predetermine beforehand) and the insurance company has their chunk (which is the rest of the claim, up to the limit on your policy.)

Here’s an example. Let’s say you set your deductible at $500. Then a tree branch smashes your car and causes quite a bit of damage. Ugh. The repairs are going to cost $2,500. You would pay $500 and the insurance company would cover the remaining $2,000 if falling trees are covered by your car insurance.

Does my deductible matter?

Your deductible is one of the many things that can affect your car insurance rates. If you choose a higher deductible, you might get lower premiums because you’re less likely to file a claim. (Let’s face it – it just wouldn’t be worth it to file a small claim if your deductible is something like $1,000.) But you also don’t want to set it so high that you would go broke if you had to pay it.

Basically, think about how much money you could comfortably afford to pay in the event that something – like a belligerent tree – happens to your car.

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