What Is A 'Deductible' In Car Insurance?

May 9, 2024

Imagine you're behind the wheel, the road stretching out ahead. Now think about what would happen if suddenly, out of nowhere, a challenge appears—maybe a stray deer, a slick patch of ice, or another driver's mistake. That's where car insurance steps in, not just as a legal must-have but as your first line of defense in the unpredictable world of driving. At Begin Insurance, we’re here to ensure that understanding your car insurance is as simple as a Sunday drive.

Let’s start with a fundamental piece of the puzzle, the 'Deductible'.


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What is a Deductible?

In the simplest terms, a deductible is the amount you agree to pay out of pocket when you make a claim on your car insurance. This payment is your part of the responsibility before your insurance coverage covers the remaining costs. Deductibles are a fundamental part of your insurance policy, directly influencing both the cost of your policy and your expenses during a claim.

How Deductibles Work

To understand how deductibles work, consider this scenario: if your car suffers damages that cost $2,000 to repair and your deductible is $500, you will pay the first $500, and your insurance will pay the remaining $1,500. It's a shared cost mechanism that keeps insurance premiums more affordable for everyone. Essentially, the higher your deductible, the lower your premium tends to be. This is because you're taking on more financial responsibility in the event of an accident, which reduces the financial risk for the insurer. For more ways to reduce your car insurance costs, check out our guide on ways to lower your car insurance premiums in Ontario.

Deductibles typically apply per claim, which means you're responsible for the deductible amount each time you file a claim. This aspect is crucial to consider when setting your deductible amount; it should be an amount you can comfortably afford in case of unexpected damages.

Types of Deductibles

Deductibles in car insurance aren't just about the amount you pay; they also differ in type, each designed for specific situations. The most commonly recognized deductibles are for collision and comprehensive coverages, but there are also other types, such as Specified Perils and All Perils, depending on your policy options and where you live.

Collision Deductible

This deductible is applicable when your vehicle is involved in an accident, whether it collides with another vehicle or a stationary object like a light pole. The collision deductible is required regardless of fault, meaning you will need to pay this deductible even if the accident was caused by another driver. For instance, if your repair costs are $3,000 and your collision deductible is $500, you'll pay the first $500 and your insurance will cover the remaining $2,500. However, in provinces like Ontario, under Direct Compensation Property Damage (DCPD) coverage, if you are not at fault in an accident, you may not need to pay your collision deductible, as your insurer will cover the costs without charging the deductible. This may vary based on where you are located in Canada, so it's better to consult with a professional before making a decision.

Comprehensive Deductible

Unlike the collision deductible, the comprehensive deductible covers scenarios unrelated to driving accidents, such as theft, fire, or environmental damage like a tree falling on your car during a storm. If a hailstorm results in $1,500 of damage to your car and your comprehensive deductible is $300, you will pay the deductible amount, and your insurance will handle the rest.

In addition to these, you might encounter deductibles for other types of coverage:

Specified Perils Deductible

This applies to damages caused by specific risks named in your policy, such as floods or theft. Choosing this deductible can be a cost-effective option if you're concerned about particular hazards.

All Perils Deductible

This broader coverage combines collision and comprehensive, protecting you from a wide range of incidents. It's particularly beneficial if you seek comprehensive financial protection against various misfortunes.

Each type of deductible is chosen based on the risk you are willing to assume and the premium you are prepared to pay. It’s important to consider how often you drive, where your car is usually parked, and your financial capability to handle unexpected expenses when selecting your deductible.

Examples of Deductible Impact

Let's look at some examples to better understand how changing your deductible can affect your insurance costs:

  • Scenario 1: John opts for a collision deductible of $500. His monthly premium is $150. After reviewing his financial situation, John decides to increase his deductible to $1,000. Consequently, his monthly premium drops to $130, saving him $20 each month.
  • Scenario 2: Sarah has a comprehensive deductible of $250 on her policy, with a monthly premium of $120. After consulting with her insurance advisor, she chooses to reduce her deductible to $100 for greater coverage security, which raises her premium to $140 per month.

These examples illustrate that while higher deductibles can lower your insurance costs, they also increase your potential out-of-pocket expenses in the event of a claim. It's important to choose a deductible that balances your monthly budget with your financial security in case of an accident.

Choosing the Right Deductible

Factors to Consider

  • Personal Financial Situation: Your financial stability should guide your choice of deductible. If you have a robust emergency fund, you might opt for a higher deductible to lower your premiums. Conversely, if you prefer more predictable expenses, a lower deductible might be better despite higher monthly premiums.
  • Value of Your Car: The value of your vehicle plays a critical role in this decision. If your car is older and less valuable, a high deductible might make more sense because the potential maximum payout in the event of a total loss would be less significant.
  • Risk Exposure: Consider how often you drive and where you park your car. If you commute long distances or park in areas prone to accidents or theft, you might want to opt for a lower deductible to reduce potential large out-of-pocket expenses.

Tips for Making the Decision

  • Review Your Financial Health Regularly: As your financial situation changes, so should your insurance choices. Periodically reassess your deductible to ensure it still makes sense with your current financial picture.
  • Consult with Your Insurance Advisor: At Begin Insurance, we recommend discussing your options with an insurance professional who can provide personalized advice based on your specific circumstances and needs.
  • Consider the Worst-Case Scenario: Think about the most you might have to pay if a claim occurs and decide if you can handle that expense without undue financial strain.

Choosing the right deductible isn't just a one-time decision. It’s an integral part of your ongoing risk management strategy. By taking these factors into account, you can select a deductible that not only fits your budget but also aligns with your lifestyle and risk tolerance.

More Case Studies/Examples

Understanding deductibles through theoretical explanations is one thing, but seeing how they apply in real-life scenarios can provide clearer insights. Below are some more hypothetical examples that demonstrate the impact of different deductible choices in various situations.

Case Study 1: Minor Collision in a Parking Lot

Scenario: Emily has a collision deductible of $500. While backing out of her parking space at the grocery store, she accidentally hits another parked car, causing $1,500 in damage to her vehicle.
Outcome: Emily pays the first $500 of the repair costs, and her insurance covers the remaining $1,000. This deductible amount was manageable for Emily because she had set aside an emergency fund for such situations.

Case Study 2: Comprehensive Claim After a Storm

Scenario: Mark carries a $1,000 comprehensive deductible. A severe storm causes a tree branch to fall and smash the windshield of his new SUV, resulting in $2,000 worth of damage.
Outcome: Mark pays $1,000, and his insurance pays the other $1,000. While the high deductible helped keep his regular premiums low, the unexpected expense was a significant hit to his monthly budget.

Case Study 3: Stolen Vehicle Recovery

Scenario: Anita has a comprehensive deductible of $250. Her car is stolen, and when recovered, it requires $3,000 worth of repairs due to vandalism and theft damage.
Outcome: Anita pays her deductible of $250, and her insurance covers the remaining $2,750. Her choice of a lower deductible meant higher monthly premiums, but it reduced her financial stress during this disruptive event.

These examples show how different deductible levels can affect the financial outcomes in various common situations. By carefully selecting a deductible that aligns with your financial capacity and risk exposure, you can better manage potential costs and reduce overall financial strain.

Common Questions About Deductibles

1) Is a higher or lower deductible better?
Whether a higher or lower deductible is better depends on your financial situation and risk tolerance. A higher deductible generally means lower monthly premiums but more out-of-pocket costs when you file a claim. A lower deductible results in higher monthly premiums but less to pay when a claim occurs. Assess your ability to handle unexpected expenses when choosing your deductible.

2) How do deductibles apply in multi-car accidents?
In multi-car accidents, your collision deductible will still apply as it normally would for a single-car accident. You will need to pay your deductible, and your insurance will cover the rest up to the limit of your policy, regardless of the number of vehicles involved.

3) What is the difference between a premium and a deductible?
A premium is the amount you pay to your insurance company for your coverage, typically monthly or annually. A deductible, on the other hand, is what you pay out of pocket when a claim is filed before your insurance covers the remaining costs.

4) What is the maximum out-of-pocket?
The maximum out-of-pocket is the most you will have to pay in one policy period before your insurance covers 100% of any further expenses. This term is more commonly associated with health insurance but can apply to any insurance policy with caps on out-of-pocket expenses, including co-pays and deductibles.

5) What is the difference between a deductible and an out-of-pocket maximum?
The deductible is the amount you pay for repairs or claims before your insurance begins to pay. The out-of-pocket maximum, however, is a cap on the total amount you would have to pay during a policy period, including deductibles, copayments, and coinsurance. 

6) What deductible is best for car insurance?
There is no such term as "Best Deductible". However, most common deductibles for car insurance are typically $500 or $1,000. Choosing the best deductible depends on balancing your monthly budget with how much you can afford to pay in the event of a claim. Consider your financial stability, the value of your vehicle, and your driving habits when deciding.


As we've explored, deductibles are the amounts you pay out of pocket in a claim before your insurance starts to cover the rest. They significantly affect your premiums and your financial responsibilities during an accident or loss.

Here is a quick recap:

  • Deductibles influence premiums: Higher deductibles typically result in lower premiums and vice versa.
  • Different types for different uses: Collision deductibles apply to accidents, while comprehensive deductibles cover other types of damage and loss.
  • Personal financial situation matters: Your choice of deductible should reflect your financial stability and your comfort level with potential costs that you might have to pay out of your pocket.

We encourage you to regularly review your car insurance policy and consider these aspects carefully. Insurance isn't just a legal requirement; it's a crucial part of your financial safety net. If you're uncertain about how to choose the right deductible, or if you need to understand how changes in your policy might affect you, don't hesitate to consult with one of our professional brokers. At Begin Insurance, we're here to help clarify these details and assist you in making decisions that best suit your needs and circumstances.

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*Note: All scenarios and numerical values presented in this blog, including examples of deductibles, premiums, and out-of-pocket expenses, are hypothetical and intended for illustrative purposes only. Begin Insurance does not guarantee the accuracy or applicability of these examples to individual circumstances. Insurance policies and their terms can vary significantly; therefore, we recommend consulting with a an Insurance advisor to discuss your specific insurance needs and obtain advice tailored to your situation.

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