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How to Choose Your Auto Insurance Deductibles

Aug. 25, 2021
4 mins
A male driver sits smiling with a female passenger on a bright day

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

What is an insurance deductible?

Your deductible is what you must pay out of pocket if you file a claim. If you are 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 are on the hook for the rest; the $1,000 deductible.

The higher your monthly premium, the lower your deductible, 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. Before you decide, there are many things to consider.

How to determine what your auto deductibles should be

Consider the value of your vehicle, your financial position, your driving record and the road conditions where you live when choosing your deductible. Every driver is unique, which is why premiums can vary drastically.

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 are determined to be at fault and your vehicle needs repairs. A comprehensive 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. 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 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.

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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 are on a tight budget, you might have selected a high deductible to save money on your premium. But if you must 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 have 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 are 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 are likely to be an accident, consider a lower deductible. If you are a safe driver who does not spend much time in heavy traffic, you might risk a high deductible.

The more you are on the road, the more likely you are going to be in a collision, even if it is 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 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.

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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