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How do I set my collision deductible?

Learn how a collision deductible works and how to choose one that fits your needs.

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No one plans to get in an accident, but it pays to be prepared if you do. Having collision coverage on your auto policy is the best way to protect yourself financially if your car is damaged, even if you're not at fault.

You should know how to choose the right deductible for your collision coverage. Set your deductible too low, and you may pay a higher monthly premium than you need to. Go too high and you may not be able to afford repairing or replacing your car after an accident. Read more to learn how to set a collision deductible that fits your budget and protects you financially.

How do deductibles work?

When you have a loss that your policy covers, the deductible is the amount you pay before your insurance covers the rest.

Insurance companies use deductibles as a way for you to share the risk to insure your vehicle. That means the lower your deductible, the more you'll pay for your insurance.

Deductible options vary by state. The most common amounts are $250 and $500, but you may be able to set yours at $1,000 or more.

Auto insurance deductibles are paid per claim. For example, if you have two accidents in the same year and your deductible is $500, you'll pay $1,000 in deductibles – $500 for each claim.

What's a collision deductible?

Auto insurance policies usually require you to have separate deductibles for collision and comprehensive coverage. Your collision coverage helps pay to repair or replace your car, no matter who causes the accident.

Let's say your car repairs cost $1,200 after an accident. If you have a $500 deductible, you're responsible for the first $500 of the repair cost. Your auto insurance company covers the remaining $700.

Collision deductibles apply only to your car's damage, not the liability coverage that kicks in if you're found legally responsible for other people's injuries or property damage. The good news is liability coverage doesn't have a deductible. So, if you cause an accident that damages your car and someone else's, you'll only pay your collision deductible.

Keep in mind, if another driver causes an accident and has insurance, their liability coverage should pay to repair the damages to your vehicle. It could be a different story if they have little to no insurance and you don't have uninsured and underinsured motorist coverage. In that scenario, your collision insurance may be what keeps you from being on the hook for repairs.

Most states don't require you to have collision coverage, but they do require you to get liability insurance. However, most lenders require collision coverage if you're buying or leasing your vehicle. Once your car is paid off, having collision insurance almost always makes sense, unless the cost of replacing it is less than the cost of insuring it.

Choosing your collision insurance deductible

Many people set the same comprehensive and collision deductible to keep things easy. But you can choose the collision deductible that's right for you.

According to the Insurance Information Institute, the average collision claim can run about $5,000, nearly twice the average comprehensive claim. You may find a slightly higher collision deductible helps keep your monthly premiums more manageable, while also allowing you to have a lower comprehensive deductible.

Here's what USAA suggests when setting your collision deductible:

  1. Choose a deductible you can afford.
  2. Consider the vehicle's value.
  3. Avoid the extremes.

1. Choose a deductible you can afford.

Don't set your deductible any higher than what you have in your emergency savings fund. Accidents are unpredictable, so you need to be confident you'll be able to pay your deductible at a moment's notice.

2. Consider the vehicle's value.

Before getting an insurance quote, you should determine your car's value. If your vehicle isn't worth much, you may want to choose a lower deductible or decide if you want comprehensive and collision coverage at all.

If you keep coverage on your older vehicle, lowering your deductible may be the way to go. For example, if you estimate it would cost about $1,200 to replace your car, a $1,000 deductible doesn't make sense. Between monthly premiums and your deductible, you may end up paying more to insure your car than what it's worth. But if your emergency fund has enough to cover your car's repair or replacement costs, it could make more sense to drop your comprehensive and collision coverage. Keep in mind, you'll still need liability coverage as required by law.

3. Avoid the extremes.

Remember, choosing a deductible that's too low or too high is an easy way to end up overpaying later. Try to find a balance between a monthly payment you're comfortable with and a deductible you can afford.

Insuring your vehicle

Auto insurance is more than just a bill. It helps protect one of your biggest investments.