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How Do Auto Insurance Deductibles Work?

If you’ve got auto insurance — or are shopping around for some — you may have heard the term “deductible.” When you build a car insurance policy, you’ll have to decide how much of a deductible you want, most often either $500 or $1,000. So what exactly is a car insurance deductible? And how much should yours be? We’ll help you understand your deductible and what’s best for your auto insurance to help protect what matters most.


  1. You do your best to be a safe driver. While you can’t always control the road conditions or other drivers on the road — now you can take more control of what you pay when the unexpected happens.

    American Family Insurance has a new, affordable way to protect your vehicle and your wallet from surprise expenses. Diminishing Deductible is an optional coverage that helps you reduce your out-of-pocket expenses when you need to file a car insurance claim.

    Here’s how it works:

    You’ll earn a lower deductible immediately when you add Diminishing Deductible Coverage to your auto policy. That’s right, we credit your deductible $100 on Day 1! Then, we’ll credit your deductible $100 each year, up to your policy maximum. And you can watch your deductible diminish over time!

    What does this mean for you? Suppose you’ve been claims free for several years. And then, during a sudden rainstorm, you hydroplane and rear-end the car ahead of you. Thankfully, your American Family auto policy covers collision damage. Usually, you would need to pay your $500 deductible before your insurance covered the remaining balance. Except you have Diminishing Deductible coverage! Because this is the first auto insurance claim you’ve filed in the five years since you first added Diminishing Deductible to your vehicle policy, American Family has credited your deductible 500 dollars. Your deductible has dropped to zero dollars — so you pay nothing out-of-pocket and American Family covers everything. That’s diminishing deductible working for you!

    Following your claim, your deductible resets to year 1 with your deductible credited $100 so you can go right back to continuing to earn a reduced deductible amount again. Plus, you can get diminishing deductible coverage for more than just your car or truck — it’s available for boats, RVs, motorcycles and more! Isn’t it time you earned a reward for being a responsible driver?

    Learn more about how Diminishing Deductible can help you protect your savings from the unexpected. Contact your American Family Agent today!

Insurance Premium vs. Deductible

So what’s the difference between your insurance premium and your deductible? The premium is what you pay per month, every six months or annually — depending on your policy’s payment plan — to maintain your insurance policy. Your insurance deductible is the amount of money you’ll have to pay out of pocket before your insurance coverage kicks in and pays for your claim.

When it comes to the relationship between your deductible and your premium, generally the lower your deductible is, the higher your premium will be. This is because you’re essentially paying to have fewer out-of-pocket expenses should you file a claim, so your future claims payouts may cost the insurance company more than someone with a higher deductible. On the other hand, the higher your deductible, the lower your premium will be.

Average Car Insurance Deductible

The average car insurance deductible is $500, which, if a claim is filed, will generally be less than whatever the cost of repairs are for a serious accident. If the cost of repairs is less than your deductible, you should not file a claim. Your insurance company won’t pay for any repairs below the deductible, and filing a claim can cause your insurance premium to rise.

For example, if you get into an accident that damages only your windshield, it may cost around $400 to fully replace it. With a $500 deductible, you’d pay the entire cost yourself, rather than your insurance paying for it, and you wouldn’t file a claim. But if you get into a covered accident that damages the structure of your car, causing it to need extensive repairs, this could cost upwards of $3500 to fix. With a $500 deductible, you would only pay $500 towards the repairs, while your insurance company would pay the rest.

How Much Should I Choose for My Deductible?

So, is it better to have a $500 deductible or a $1,000 deductible? That depends on your individual financial needs. Depending on the potential cost of repairs for damages to your vehicle and your budget, the size of your deductible could be larger or smaller.

$500 Auto Insurance Deductible

Generally, the lower your deductible, the more you pay in premiums. But, because the deductible is lower, you’ll pay less out of pocket for expenses related to car repairs after an accident.

$1,000 Auto Insurance Deductible

With a higher deductible, your premium rate is generally lower, which means your insurance costs you less than someone with a low deductible. But that also means you pay more out of pocket for car repair costs before your insurance kicks in.

Have more questions about your auto insurance deductible? Connect with your American Family Insurance agent — they can help you further understand your auto insurance policy and adjust your deductible if you need a change.


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Related Topics: Insurance Terms , Insurance Needs , Car Insurance