How to choose an auto insurance deductible

What a deductible does

A deductible is the amount of a claim that you pay yourself before the insurer pays the rest. The National Association of Insurance Commissioners (NAIC) describes it as the amount you agree to pay before the company makes any payment on a loss, and says typical amounts are $250, $500 and $1,000.

The Texas Department of Insurance gives a simple example. If you have a $1,500 collision claim and a $500 collision deductible, the insurer subtracts $500 and pays you $1,000. The same arithmetic applies to every covered claim that carries a deductible.

Which claims have one

Not every part of an auto policy has a deductible. The Texas Department of Insurance says you pay a deductible for collision, comprehensive, and uninsured or underinsured motorist claims. It also says you do not pay a deductible for a claim made against another driver's insurance company. If you file with your own company instead, you generally pay yours.

If your policy has collision or comprehensive coverage, it will list a deductible for each. Check the declarations page, the first page of the policy, which the Texas Department of Insurance says summarizes your coverages, dollar limits, and deductibles. NAIC adds that dropping collision or comprehensive might save money, but suggests weighing the car's value and the cost to repair or replace it against the saving.

The trade-off between premium and deductible

NAIC says that, in general, the higher the deductible, the lower the premium. A lower deductible means a smaller bill when you file a claim, but you pay more for the policy all year. A higher deductible does the reverse.

The official Massachusetts auto insurance guide puts the question in practical terms: decide how much you can pay yourself if you have a loss that is your fault, or if you cannot identify the other driver. Start from that amount rather than from the cheapest quote. Rules differ by state, so check what your state offers.

Questions to ask before you choose

Ask the insurer or a licensed agent to show the premium at two or three deductible levels for the same coverage. Compare the yearly difference with the extra amount you would pay after a claim. Then work through these questions.

• If I had to pay this deductible next month, where would the money come from?
• Is the saving in premium large enough to justify the extra risk I would carry?
• Do collision and comprehensive have separate deductibles on my policy?
• If my car were totaled, what would the insurer pay? The Texas Department of Insurance says a company that totals a car pays its value minus depreciation, not the price of a new one.
• Does my loan or lease contract set a maximum deductible?