What happens if my deductible is higher than my repair cost?
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UPDATED: Mar 13, 2020
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A deductible is the portion of a vehicle’s repairs that you are responsible for paying whenever an accident occurs. All first-party coverages such as collision and comprehensive have a deductible, and higher deductibles relate to lower premiums because it shifts the burden of risk away from the insurance company. Lower deductibles, on the other hand, raise the cost of insurance but also lead to higher claim pay-outs from insurers.
Many people shy away from carrying high deductibles because they are afraid of being liable for that cost. They may believe that they will be in debt to the insurance company for the amount of the deductible, or they might think they have to pay the deductible amount up front in order to file a claim. Fortunately, neither of these are true. In fact, you don’t pay your deductible to the insurance company at all. By understanding the way that deductibles work, you will be better prepared for any claim you may need to file. You’ll also be better-equipped to make decisions about your policy and its coverages.
Do I Owe a Deductible for Every Accident?
Unlike medical insurance deductibles, which apply on an annual basis, car insurance deductibles are applied to each individual claim. This means that if you have multiple accidents in a single year, you will need to pay a separate deductible for each one.
In most cases, you are only responsible for your collision deductible in accidents where you are not at fault. You may still need to pay your deductible up front, however, and have it reimbursed to you after the claim has been settled. This process can take several months if the accident was complex, so don’t assume that you will have a deductible waived simply because you are not at fault.
Who Gets the Deductible?
You do not pay the deductible to your insurance company. Instead, you owe it to the body shop that completes the repairs of your vehicle. In this regard a car insurance deductible is more like a medical insurance co-pay. When your vehicle is inspected after an accident, the insurance adjuster will write an estimate for the repair cost and subtract the amount of your deductible from the total cost of repairs. You will then receive a check for the difference.
This means that you may be able to pay less for your portion of the repairs than the total amount of your deductible if you can negotiate a lower price with your body shop. For example, if the insurance company writes an estimate for $1,500 and you have a $500 deductible, you will receive a check for $1,000.
If you can find a body shop that will do the work for $1,200, you can save yourself $300. Don’t count on this situation occurring frequently, however, as insurance companies are careful not to over-pay their customers and the estimates they write are usually very accurate and conservative.
What if the Deductible is Higher Than the Repair Cost?
When a vehicle is involved in a minor collision, the repairs sometimes cost less than the amount of the deductible. This is especially common in situations where drivers carry high deductibles, but very minor damages can cost just a few hundred dollars to repair. For example, a minor dent may cost $350 to repair, but you have a $500 deductible.
In these situations, you do not owe the full amount of the deductible. Instead, you only owe whatever the actual repair cost is of your vehicle. The insurance company will close the claim without making a payment, and you would pay for the repairs out of pocket.
When this occurs, the accident will usually not count against your rates since the insurance company did not need to settle it. If you own your vehicle outright, you can decide if it’s worth repairing the vehicle; if you’re making payments on it, you must complete the repairs out of pocket. If they are extremely minor, you may be able to get by without repairing them as financing companies do account for some amount of wear-and-tear.
While in the process of repairing your vehicle, if the body shop discovers additional damages, the cost of repairs may increase beyond the initial estimate. In this case, you would need to contact your insurance company to re-open the claim; you can provide proof of payment for any work that was already completed to show that you have already paid your deductible. The insurer would then proceed to pay for damages over that amount.
By understanding how your deductible works, you can make wise choices regarding how much your deductible should be and what coverages you choose to include on your policy. If you have any other questions about your coverages, you can discuss your individual situation with a licensed insurance agent.