What is a Deductible in Car Insurance?

A deductible in car insurance is an agreed amount that you must pay out of pocket after an accident before your insurance covers the accidental damage. For example, if you’ve a car insurance deductible of $500, and after an accident your car’s repair cost is $2,000.

So, you will have to pay $500 out of pocket, and then your insurance company will cover the remaining $1500 for your car’s repair or replacement cost.

How Do Car Insurance Deductibles Work?

You need to declare the car insurance deductible amount to your insurer, and based on that you will have to pay the deductible out of pocket first before retrieving your insurance coverage.

Typically, car insurance deductibles are associated with collision and comprehensive coverage. In Michigan, a deductible may also apply to certain PIP benefits depending on your policy. Liability auto insurance, commonly known as PLPD insurance in Michigan, generally does not have a deductible because it covers damages or injuries you cause to others rather than repairs to your own vehicle.

When it comes to determining your car insurance deductible, it will depend on the terms and conditions of your insurer. Most insurers allow a deductible amount between $250 and $2,000. While some insurers allow a deductible amount of even $0.

So, depending on the deductible amount that you agree with your insurer, you will have to pay the deductible amount after claiming the insurance. While you have the flexibility to pick a feasible amount for your car insurance deductible, $500 is the most common choice.

Once you agree to a deductible amount with your insurer, for example you and your insurer agree to a car insurance deductible of $300. After a car accident when you take your car to the auto repair shop, you can either choose to pay the $300 initially and then claim your auto insurance.

Or, if it’s possible you can pay the full repair or replacement cost including the deductible and then claim insurance. In this scenario, your insurer will pay for the repair/replacement cost of your car up to your coverage limit by excluding the deductible amount.

On that note, if the overall repair cost of your car is $1000, and your deductible amount is $300, your insurer will cover $700 for the claim.

Also, you generally need to pay the deductible when you file a covered claim under a policy coverage that has a deductible. For example, if your collision coverage has a $300 deductible, you would pay $300 toward a covered collision loss before your insurer pays the remaining covered amount, subject to your policy's coverage limits and terms. 

If you're unsure what happens after an accident, read our guide on the auto accident insurance claim process to understand the steps involved in filing a claim

Is Car Insurance Deductible Mandatory in Michigan?

No, Michigan law does not require drivers to carry a specific deductible amount for auto insurance. However, the deductible options available to you depend on the coverage and insurer. For example, collision and comprehensive coverage may be offered with different deductible amounts, while certain PIP benefits may also have a deductible depending on the policy. 

Your deductible is the amount you agree to pay toward a covered loss before your insurer pays the remaining covered amount, subject to the terms and limits of your policy. A higher deductible generally means you take on more of the cost when you file a covered claim, while a lower deductible generally means you pay less out of pocket when a covered loss occurs. 

The deductible options available to you can vary by insurer and coverage. Before choosing one, review your policy to understand which coverages have deductibles and how much you would need to pay after a covered loss. 

The rules are similar across the country, but Michigan has specific coverage options under its no-fault auto insurance system, so the deductible that applies depends on the type of coverage you have.

If you’re looking for a reliable auto insurance agency offering affordable car insurance with flexible deductibles, you should consider exploring our car insurance solutions. Moreover, we have regional offices across different cities in Michigan including Flint, Saginaw, and Mt. Pleasant to provide extended support whether it’s concerning deductibles, or any other insurance related queries.

Cost and Benefits of Car Insurance Deductibles

When it comes to car insurance deductibles there are many pros and cons to consider. Depending on your financial condition, your car insurance deductible can either be beneficial for you, or it can lead to increased costs. Here’s a detailed breakdown to help you properly understand the cost and benefits of car insurance deductibles.

Costs of Car Insurance Deductibles

The costs of car insurance deductibles can be detrimental especially if it’s not financially feasible for you. In fact, there are possibilities that it can contribute to increased financial burdens if you choose deductibles higher than your financial flexibility.

• Your deductibles are higher than your repair costs: Let’s say you have a car insurance deductible of $2,000. After a car accident, your repair expenses cost $1,500. In this case, you will have to pay the entire repair cost out of pocket, as it’s within your deductible amount.
• Great out of pocket expenses: Depending on the severity of the accident, and the damages incurred, you will have to pay your deductibles before your insurance coverage steps in. So, while trying to save on premiums, you may end up spending more on your deductibles for each claim.
• Increased financial stress: The main reason to acquire car insurance is to relieve yourself of financial stress, but higher deductibles can increase your financial burdens especially if it’s difficult for you to pay up. Also, if you have a deductible amount of $2,000, and if the repair expense is $2,500 then your insurer will just have to cover $500, while you pay the most out of pocket.

While opting for a higher car insurance deductible has some crucial benefits, it comes with some high financial costs. So, before opting for a high car insurance deductible it’s best to carefully review your financial capabilities, to see whether it’s feasible for you.

If you need help determining your deductibles, you can always consult with an insurance expert to understand the costs and benefits of obtaining high deductibles. Based on that you can decide whether to go for zero, low or high deductibles.

Benefits of Car Insurance Deductibles

Car insurance is a significant recurring expense. You will have to pay monthly, or annually to keep your auto insurance policy active. If you're trying to reduce your car insurance premiums, choosing a higher deductible may help lower your premium because you agree to take on more of the cost if you file a covered claim.

The higher the deductible, the lower the car insurance premium, this is because you're taking on more financial responsibility in the event of a claim, which reduces the insurer’s risk.
If you're considering adjusting your deductible, here are some of the key benefits:

• Lower insurance premiums: Choosing a higher deductible can significantly reduce your monthly or annual premium, making car insurance more affordable in the long run.
• More room in your budget for other expenses: By lowering your insurance premiums, you can free up funds for savings, bills, or other financial goals.
• Customizable deductible options: Most insurers offer flexible deductible amounts ranging from $0 up to $2,000 or more allowing you to choose one that fits your budget and risk tolerance.

Is it Better to Get a High Deductible or a Low Deductible?

Whether you should get a high or low car insurance deductible ultimately depends on your financial capabilities. Both options have their own set of pros and cons. Now, it’s up to you to carefully analyze your financial situation and determine if you should opt for high or low deductibles.

If you can easily afford a high deductible without any financial stress, then you can consider opting for a higher deductible. Accidents are probable, so if you can drive safely and keep yourself out of harm’s way, then you may not even have to claim insurance. So, under that assumption a higher deductible can help you save up more on annual premiums.
On the other hand, according to Michigan State Police, the Traffic Crash Reporting Unit receives and processes approximately 315,000 crashes annually in Michigan. This shows that car crashes are relatively common across the state.

To stay on the safe side, it is crucial for you to maximize the benefits of your car insurance coverage. Just one severe accident can lead to expensive hospital bills, and a high car repair/replacement cost.
So, if you rely on your car insurance to pay for hefty accidental coverage, then the most feasible option is to opt for zero, or low car insurance deductible. If you want to save on your insurance premiums then you can consider the added risk of higher deductibles.

Is it Possible to Have Zero or No Car Insurance Deductible in Michigan?

Yes, a $0 deductible may be available for some auto insurance coverages in Michigan, depending on the insurer and policy. However, not every coverage or insurer offers a zero-deductible option. Collision and comprehensive coverage, for example, can have different deductible options depending on the policy you select. Certain types of auto insurance may also have different deductible requirements or options. 

Some insurers may offer policyholders the option to choose a zero-dollar deductible for certain coverages, depending on the policy. 

So, if you don’t want deductibles with your auto insurance in Michigan, you should explore and find insurers that offer the flexibility of not having deductibles.

Final Thoughts: Should You Opt for Car Insurance Deductible?

Opting for car insurance deductible is an effective way of lowering your insurance premium. So, if you intend to save up by opting for car insurance deductible, make sure it’s within a feasible amount that you can easily afford with each claim.

It may feel tempting to choose a higher amount which can be difficult for you to pay up with the benefit of getting a much lower car insurance premium, but if you get into an accident then a high deductible can cost you significantly more than the insurance premium. Typically, as you have the option to either get zero, low or high deductibles, you should choose an amount that’s financially most feasible for you.

There are times it can get confusing to determine a deductible amount, so if you need help you can contact us for expert advice with free consultation. If you’re interested, you purchase any of our car insurance coverages, you can also get a free today upon signing up.

Frequently Asked Questions (FAQs)

Is it better to have a $500 deductible or $1000?

It depends on how much you can comfortably afford to pay out of pocket after a covered loss. A $1,000 deductible may result in a lower premium than a $500 deductible, but you would have to pay more out of pocket if you file a covered claim. A $500 deductible generally means a higher premium but less out-of-pocket expense when a deductible applies.

How does a deductible work?

After an accident if your car’s repair/replacement cost is $2,000, and if you have a car insurance deductible of $1,000. You will have to first pay your deductible amount of $1,000 then your insurer will cover the remaining $1,000 up to your coverage limit.

Do you get money back from a deductible?

Not exactly. You generally remain responsible for the deductible amount on a covered claim. If you pay the entire repair bill upfront, your insurer may reimburse the covered portion of the repair cost according to your policy. For example, if the covered repair costs $2,000 and your deductible is $500, the insurer may pay $1,500, leaving you responsible for the $500 deductible.

What is the recommended deductible for car insurance?

The most common car insurance deductible amount is $500, but policyholders also widely opt for other common deductible amounts such as $250, $1,000, and $2,000.  

Is a $0 deductible good for car insurance?

A $0 deductible, or no deductible, is a great option especially if you want your insurer to immediately cover the repair/replacement cost of your car after an accident. Although opting for a $0 deductible can lead to higher car insurance premiums, ultimately it offers you instant financial protection without any out-of-pocket costs.