How to choose your auto insurance deductibles

This article has been updated from a previous version.

The cost of auto insurance varies from province to province. Factors impacting costs include local regulations, accident rates, population density, and weather conditions. For example, Ontario generally has higher premiums due to its large population, traffic and higher incidents of auto theft compared to smaller cities.

But no matter where you live, choosing the right deductible is an important decision to make sure you get the right amount of coverage for your needs and budget.

What is a deductible?

A deductible is the fixed amount you pay out of your own pocket before your insurance coverage steps in. Depending on the policy, this deductible can be a fixed dollar amount or a percentage of the claim. Once you’ve paid the deductible, the insurance company covers the remaining costs.

The cost you pay can differ based on your province and insurance provider. Auto deductibles typically range from $250 to $1,000.

How does a deductible work?

If you’re involved in a single-vehicle accident and the repair costs amount to $10,000, you'll pay the $1,000, and your autobody shop will directly bill the insurance company for the remaining cost--approximately $9,000 in this case.

Keep in mind that the lower your deductible, the higher your monthly premium, so it is 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.

Read more: Do Drivers Who’ve Had an Accident Select Higher Car Insurance Deductibles?

Why do auto insurance policies have deductibles?

A deductible is a way to share costs in insurance. It helps reduce smaller claims, lowers costs for insurance companies, and ultimately decreases the overall premium paid by the policyholder.

It's also a way for the insurer to share some of the risk with you. So, while the insurer does cover you in case you get into an accident, you're still responsible for small losses.

Whether you pay a deductible or not for a claim depends entirely on the type of coverage you're requesting, which will be explored in more detail below.

What are the different types of deductibles?

Every driver is unique, which is why premiums can vary drastically depending on what type of deductible you end up choosing. Let’s explore the different types:

• Collision deductible: This amount is what you pay when you get into an accident if you are determined to be at fault and your vehicle needs repairs. Typically, collision deductibles are higher than comprehensive deductibles.
• Comprehensive deductible: This type of deductible is more wide-ranging, and it is 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.
• Disappearing deductible: It is 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. You may be paying the mechanic repairing your vehicle the deductible so the insurer can pay the rest. Financing with the mechanic may also be possible. Otherwise, you will have to get a loan to cover the deductible if you do not have the money on hand.

Related: Does your car insurance policy include collision and comprehensive coverages?

What type of deductible is right for me?

When choosing your deductible, consider the following three factors:

Financial position: Think about the amount of cash you have available in your bank. If you’re okay with taking more financial responsibility, you can choose a higher deductible. That means you’ll pay less for insurance each month, but if you need to make a claim in case of an accident, you’ll pay more out of your own pocket.

Value of your vehicle: If your car is older and not worth much, it may not make sense to pick a high deductible. This is because it could end up costing you more than the car is worth. In this case, a lower premium is better. That way, you pay less upfront, and it won’t cost you more than your car’s value if you need repairs.

Driving habits: If you often make insurance claims, having a low deductible may save you more money over time. If something happens, you won’t have to pay as much out of your own pocket before the insurance helps cover the costs. (However, keep in mind that both claims history and a low deductible translate into higher premiums.)

However, if you have a clean driving record and rarely make claims, you might prefer a high deductible.

Why? Because it means you’ll pay less for insurance each month. You’re also less likely to need to make claims, so having a higher deductible can save you money overall.

Read next: 5 bad driving habits that could cost you

Is a deductible applied to every claim?

A deductible is applied to every claim, except in the following cases:

• If you’re making a claim after a collision in which you were not at fault
• If you're in a hit-and-run accident and can identify the other driver, their insurance covers your losses. (But if the other driver takes off, your own insurance comes into play. You'll then need to file a collision claim and pay your deductible.)
• In all provinces, except Ontario and Quebec, you won’t have to pay a deductible if your loss results from fire, lightning, or vehicle theft.

Map out your costs

To understand how your costs balance out, you will need to run the numbers on your monthly premium. Doing so can show you if a lower deductible saves you money in the long run. Figure out how much in deductible costs you can afford to pay if necessary.

Speaking with an insurance broker or agent can help. You can also calculate a few scenarios on your own using a comparison tool, picking the deductible and auto policy that is right for you.