Car insurance is one of those things that you are required to have, but you don’t really appreciate it until you actually need it. Insurance comes in layers with a lot of complicated jargon mixed in with decisions that can be all too confusing. When purchasing insurance for your car, there are a lot of things that way into how much your monthly payment will be and how much you will have to pay out of pocket in case of an accident. To those looking to buy insurance for the first time, something like a deductible can actually be rather confusing.

What are insurance deductibles?

Car insurance doesn’t necessarily work in the same way that health insurance does, especially when it comes to deductibles. According to Progressive, a popular nation-wide insurance agency, there is no annual deductible for your car that needs to be met. The insurance deductible works on a per-claim basis and affects the amount that you are responsible for paying out of pocket in case of an accident, while also contributing to how much insurance will pay you for that accident.

An image of a crashed Lamborghini Huracán Spyder outside of McDonald's.
Lamborghini Huracán Spyder Crash | Ekim Kaya via Daily Mail

How do deductibles work?

You only pay your insurance deductible in the case you are making an insurance claim. The deductible is the amount of money you take responsibility for paying in case of an accident. This can be a value underneath several categories, including collision, comprehensive, and uninsured motorist coverage. For example, if you make an insurance claim for $1,000 worth of damages, and your insurance deductible is $250, you will pay the $250 towards the repair while the insurance is responsible for the remaining $750.

Blue Tesla on trailer after crash
A damaged Tesla sits on a tow truck after a collision | Jeff Gritchen/Digital First Media/Orange County Register, Getty Images

What to take into consideration

According to Geico, another popular nation-wide insurance agency, there are two major factors to take into consideration when selecting your deductible. The first is how much money you are able to pay out of pocket in case of an accident. This shouldn’t be set so high that you will be uncomfortable making the deductible payment.

The second is to check out how the amount of the deductible will affect your policy premium. Your insurance policy premium is directly affected by the deductible you select, where a higher deductible will lower your insurance premium, and going lower will result in a higher insurance premium.

Investigator at site of Tesla crash
A rescue worker takes a picture around the spot where a Tesla slammed into a tree |ROBIN VAN LONKHUIJSEN/AFP, Getty Images

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While a deductible can be waived by an insurance agency in extreme conditions, it is always smart to choose a deductible that you are comfortable with and can be responsible for.