How Deductibles Really Work

A deductible is your part of a covered loss

A deductible is the amount subtracted from a covered claim payment. If a covered auto repair is $5,500 and the collision deductible is $1,000, the insurer would generally pay $4,500, subject to the policy terms and valuation.

You usually do not send the insurer a deductible check. The amount is commonly taken out of the payment, or you pay your portion directly to the repair shop or contractor.

It is usually per claim, not per year

Auto, home, renters, and many business property deductibles generally apply to each covered loss. That is different from the annual deductible people know from health insurance.

Two unrelated covered losses in one year can mean two deductibles. Policy details vary, so confirm how yours applies.

Different coverages can have different deductibles

An auto policy may have one deductible for collision and a lower one for comprehensive. A home policy may have a flat dollar deductible for many losses and a different deductible for certain causes of loss.

Do not assume the number you remember applies everywhere. The declarations page is the place to check.

• Collision deductible: applies to covered collision damage to your vehicle.
• Comprehensive deductible: applies to many covered non-collision losses.
• Home or renters property deductible: applies to covered property claims as described in the policy.
• Business property deductible: can vary by coverage, location, and cause of loss.

When the damage is below the deductible

If a repair is $700 and the deductible is $1,000, there is no payment under that coverage because the loss does not exceed the deductible. You can still ask questions before deciding whether to file a claim.

For a small loss, get a realistic estimate. Damage that looks minor can cost more once a shop or contractor inspects it.

Higher is not automatically smarter

Raising a deductible often lowers premium. The savings should be compared with the extra amount you would pay at claim time. Saving $90 a year to take on $1,000 more deductible may or may not fit your situation.

A deductible should be an amount you could produce without borrowing at a bad time. If the number would sit on a credit card for months, it may be too high.

Liability usually works differently

Personal auto and homeowners liability coverage generally does not use a deductible the same way physical damage or property coverage does. Some business liability policies can have deductibles or self-insured amounts.

That is another reason to review the declarations page instead of applying one rule to the whole policy.

A practical way to choose

Compare at least two deductible options. Write down the annual premium difference, then divide the additional deductible by the annual savings. That shows how long it would take the savings to equal the added claim cost.

Keep a deductible reserve in savings. The best deductible is not the highest one offered; it is the one that balances a manageable premium with a manageable claim.