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How to Choose Your Auto Insurance Deductibles

March 6, 2020
4 mins
Mom buckles baby into the car seat in their family vehicle

The cost of auto insurance varies from province to province, but no matter where you live, choosing the right deductible is an important decision.

Your deductible is what you must pay out of pocket if you file a claim. If you’re in a single-vehicle accident and repairs are pegged at $10,000, a deductible of $1,000 means your insurance company will cover $9,000 of the cost. You’re on the hook for the rest; the $1,000 deductible.

The higher your monthly premium, the lower your deductible, so it’s tempting to choose coverage with a high deductible to get a low monthly premium. However, you may end up spending more money in the long term by trying to reduce your monthly payments. Before you decide, there are many things to consider.

How to determine what your auto deductibles should be

The value of your vehicle, your financial position, your driving record and road conditions where you live should all be considered when choosing your deductible, and every driver is unique.

Your auto insurance plan must be affordable, including the deductible, which can be as low as $100 and as high as $2,000. In an attempt to lower your monthly premium you may choose to select a higher deductible, but you must be in a financial position to pay that deductible in the event of a claim.

There are different kinds of deductibles to consider. A collision deductible is what you pay when you get into an accident if you’re determined to be at fault and your vehicle is in need of repairs. A comprehensive deductible is more wide-ranging, and it’s what you pay in the event of damage to your vehicle caused by theft, vandalism, fire or impact with an animal, and any glass breakage. All these scenarios vary wildly in terms of repair costs, and all could make or break the bank depending on your ability to pay the auto deductible you’ve chosen.

Your insurer may also offer what is called a disappearing deductible. It’s an incentive that rewards a safe driving record by reducing your deductible annually. With some insurers, it means your deductible may disappear completely, and there could be a fee to be part of a disappearing deductible program. Other insurers offer programs to save money toward your deductible and even contribute to that fund.

No matter the deductible chosen, you must be able to pay it to complete your claim. Because you may be paying the mechanic repairing your vehicle the deductible so the insurer can pay the rest, financing with the mechanic may be possible. Otherwise, you’ll have to get a loan to cover the deductible if you don’t have the money on hand.

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A high or low deductible: which is best?

Your financial situation should strongly influence your deductible choice. Do you have enough money saved to cover a high deductible? If you’re on a tight budget, you might have selected a high deductible to save money on your premium. But if you have to pay the deductible, you may have to scrimp and save to pay it.

How much your car is worth is also a factor. A brand new or high-end vehicle may increase your premium, therefore, you may want to choose a higher deductible to help lower your monthly insurance payments. If you’ve got an older vehicle because you’ve taken care of it over the years or bought something second hand, choosing a lower deductible may make more sense.

You as the driver and where you drive also determines your risk for filing a claim. Whether you frequently drive in rush hour traffic or on roads where a wild animal may jump in front of your car, you’re at a greater risk of a collision.

Your personal driving record, including how many accidents you’ve been involved in, is also a key consideration. If you’re likely to be an accident, consider a lower deductible. If you’re a safe driver who doesn’t spend much time in heavy traffic, you might risk a high deductible.

The more you’re on the road, the more likely you’re going to be a collision, even if it’s just a stone chipping your windshield. If you already have a spotty driving record, your premiums will be higher, and you may not be able to afford the lower deductible.

Map out your costs

To understand how your costs balance out, you need to run the numbers to see if the monthly premium to get a lower deductible saves you money in the long run. Figure out how much in deductible costs you can afford to pay if necessary. An insurance broker or agent can help, and you can calculate a few scenarios to help you pick the deductible and auto policy that’s right for you.

Gary Hilson

Gary Hilson is a Toronto-based freelance writer who has produced thousands of words for print and pixel about business and technology for a variety of publications and corporate clients. When he’s not tapping on the keyboard, Gary collects comic books, attends live theater, constructs Lego, and buys books he always intends to read.

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