One of the primary questions car owners have when it comes to auto insurance is how their deductibles work. Unlike health insurance where you meet a deductible annually, this is not an annual part of auto insurance. You're responsible for covering the deductible in the policy every time you file a claim. After paying the deductible amount in your policy, the insurance company will pay the balance of repairs or pay to replace the vehicle.

For example, if you have a $500 deductible, and end up with $1,000 in damage from an accident that's been covered, than your insurance company is going to pay $500 to repair the car and you'll have to pay the $500 deductible.

Collision and comprehensive car insurance are the ones that typically include deductibles. You may also have a deductible for other types of car insurance for all states. However, your deductible is going to work the same way for all types of coverage.

When the Deductible Is Higher than Repairs

This can occur. If your deductible is higher than the cost of the damage to the car, you'll have to pay for the repairs entirely on your own. Your insurance company will only cover the damages that are above your deductible amount. In this case, you may not need to file a claim with your insurance company. For example, a small fender bender where your deductible is $500 and the repairs are $200, means that your insurer won't be covering any of the costs.

High and Low Deductibles

When you set up an auto policy, you'll make the decision regarding whether you want to pay a higher or lower deductible. The range of deductibles could be as low as $100 but as high as $2,000. When setting up coverage, you may be able to choose the deductible you'd like. Just like other types of insurance, a higher deductible will reduce your costs of insurance while a low deductible means you'll end up with a higher insurance rate.

Ultimately, you should choose the deductible amount that you're comfortable with and know that you could pay in the event of an accident. You should also consider your driving history and the chances of your needing to file a claim. You may have a higher deductible when you live and drive in an area where accidents are not common. However, if you have had accidents in your driving history and often drive in busy areas, then you're probably going to be better off with a slightly lower deductible. Consider asking your insurance agent what drivers in your area typically choose for a deductible amount.

Review Your Coverage

Finally, before deciding on the deductible amount that's best for you, review the coverage that you have. Make sure that you see how your rates are going to change with varying deductibles to determine how much savings or spending you will have with these variations. Once you have this information handy, you'll be able to make an informed decision for your situation.