How Do Deductibles Work for Car Insurance?
A car insurance policy is a must-have for car owners. It shields you against losses from accidents and other calamities.
New car owners looking for auto insurance and seasoned ones should understand deductibles and how they affect your compensation. In addition, knowledge of deductibles will help you make wise decisions when choosing insurance coverage.
We’ve outlined all you need to know about deductibles, where they are applicable, and how they influence your car insurance premium amounts.
Understanding Car Insurance Deductibles
The fraction you pay on a claim before your insurance provider settles the remaining amount is called a deductible.
Your car insurance provider will ask you to choose a premium and deductible amount when taking a policy. The premium is your monthly contribution towards coverage of your policy.
Before the insurer settles your claim, you agree on a fixed amount you will pay. For example, you can choose to cover $500 for every claim before the insurance covers the remaining amount.
If your car gets damaged and the repairs cost $3000, you will pay $500 before insurance covers the remaining $2500. Through deductibles, the insurance company shares a fraction of the risk with the car owner before settling claims.
Where are Deductibles Applicable, and How Do They Work?
Car insurance deductibles apply to all car insurance coverages of up to $200,000. Here are the coverages from ICBC:
| Coverages | Products |
|---|---|
| Basic coverage | Basic auto plan Unlisted driver protection |
| Optional coverage | Collision, hit and run, comprehensive, extended third party liability, among others |
Comprehensive and collision are the common auto coverages in Canada. After filing a claim, you will pay a deductible if:
- Your car gets vandalized or stolen.
- You are involved in an accident and found at fault.
- You are partially at fault for an accident, and the other driver does not have enough insurance.
In all the above cases, the insurer will calculate the total repair cost, less the deductible amount, and pay the rest.
The cost of damages can be less than your deductible. In such a case, the insurance company doesn’t remit any amount to your claim.
Your deductible will cover all the repair costs. For example, if your car hits a stationary object and the damages amount to $200 while your deductible is $500, you will incur all the repair costs.
There are cases where the insurer exempts you from deductibles. The following table shows some situations that can exempt you from paying deductibles.
| Situation | Why you are exempted |
|---|---|
| 1. The zero deductible in your policy | If you choose a $0 deductible for your auto insurance policy, you will not pay deductibles for claims you make. |
| 2. The driver at fault during an accident is insured | If you collide with another car whose driver is insured, their insurance company will cover all the damages. |
| 3. Liability claims | If a liability claim is made against your coverage, the insurer will cover the losses against the other party. This exempts you from deductibles. |
Do Deductibles Impact Car Insurance Premiums?
Insurance companies allow car owners to choose deductible amounts when they take a policy. In Canada, car insurance deductibles range between $500-$1000.
The following factors determine insurance costs.
- The higher the risk, the more you will pay. For example, if you have caused many crashes, you will pay more.
- With each year of driving, you earn a discount as you gain experience. This goes up to 40 years.
- Escalating deductibles of $500-$2500 for customers with multiple claims.
- Distance-based discount where you get a distance when you’ve covered 10,000 km or more.
- Territory and rate class, depending on your neighbourhood.
Deductibles also influence the premiums you pay. Simply put, you pay higher premiums for low deductibles and low premiums for high deductibles.
Should You Go for Low or High Deductibles?
Your choice depends on your financial ability and residential area. If you can afford expensive repairs in case of an accident, go for higher deductibles.
The high deductibles will lower the amount you have to pay in premiums to have your car fixed.
And if you know that an accident can greatly affect your financial position, choose lower deductibles. This will enable you to access insurance coverage without straining financially.
Your residential area also matters. If you live in an area that frequently experiences hail, floods and animal encounters, a higher deductible will come in handy. This is because your car is likely to get damaged often.
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Sources:
- https://www.tdinsurance.com/products-services/auto-car-insurance/tips-advice/car-insurance-deductible
- https://www.forbes.com/advisor/ca/car-insurance/what-is-car-insurance-deductible/
- https://milesopedia.com/en/guide/understanding-car-insurance-deductibles-canada/
- https://www.icbc.com/claims/repair-replace/Pages/collision-claims.aspx#:~:text=ICBC%20pays%20most%20shops%20directly,your%20insurance%20covers%20the%20rest
- https://www.icbc.com/insurance/Pages/Default.aspx