How do I set my comprehensive insurance deductible?

Choosing the right deductible can be challenging when purchasing auto insurance. The right balance between affordable monthly premiums and a reasonable deductible is different for every driver and every vehicle.

The decision is further complicated when choosing separate deductibles for different coverage types, such as collision and comprehensive. Here, we'll talk specifically about your auto insurance policy and how to set your comprehensive insurance deductible.

How do deductibles work?

When you get a quote for auto insurance, you choose between several deductibles. This is the amount you're required to pay out of pocket when you make a claim before the insurance company begins to cover your losses.

Deductibles allow you to share the financial risk of loss with the insurance company. The more risk you're willing to take through a higher deductible, the less you'll pay in insurance premiums each month. Auto insurance deductibles vary by state, with options up to $1,000, sometimes more. The most common deductibles are $250 and $500.

Unlike some other types of insurance with annual or lifetime deductibles, auto insurance policies require you to pay your deductible for each claim. If you need to file multiple comprehensive insurance claims in the same year, you'll have to pay your full deductible for each claim.

What's a comprehensive insurance deductible?

The comprehensive portion of your auto insurance policy covers damage that isn't caused by a collision. This can include events such as fire, vandalism, glass damage and theft.

Comprehensive insurance will also cover damage to your vehicle if you hit an animal, such as a deer. However, if you swerve to avoid an animal in the road and hit something like a guardrail or even another car, you'll need to file a collision insurance claim.

For example, let's say you hit a deer and total your car. If your vehicle's value is determined to be $12,000 and you have a $500 deductible, your insurance company will give you $11,500. You can then use that money to purchase a replacement vehicle.

If you have a loan on your vehicle, your insurance company will submit a payment to your loan provider. You would use the difference between the insurance settlement value and your loan balance as money toward a new car.

Comprehensive insurance isn't required by law, but if you finance or lease your vehicle, your lender will likely require you to carry it. Regardless, comprehensive insurance is always a good idea to have since you'll be on the hook for the full cost of repairing or replacing your vehicle if something happens that's out of your control.

Choosing your comprehensive insurance deductible

For simplicity, many drivers choose the same deductible for comprehensive and collision insurance. This isn't a requirement, and it's possible to set a different deductible for comprehensive insurance.

A typical comprehensive claim is about $1,800, which is about half the average collision claim, according to the Insurance Information Institute. Since comprehensive claims are generally lower, insurance companies charge less for this coverage. You may find that choosing a lower comprehensive deductible doesn't raise your monthly premium as much as changing your collision deductible. How you balance this risk is up to you, but there are a few things to consider before making your decision on a comprehensive deductible.

1. Choose one you can afford.
2. Consider the vehicle's value.
3. Know what it's meant to cover.
4. Avoid the extremes.

1. Choose one you can afford.

You should always have enough cash on hand to pay your deductible on short notice. For instance, if you select a $500 deductible and need to make a claim, you should have at least $500 available in your emergency fund.

2. Consider the vehicle's value.

By considering the cost to repair or replace your vehicle, you can gauge how much comprehensive coverage you need and which deductible makes the most sense.

Older cars with lower values are typically cheaper to insure, so carrying a lower deductible won't have as much of an impact on your finances. However, you don't want to choose a deductible too close to your car's replacement value.

Say, for instance, your older vehicle is worth $2,500. A $1,000 deductible means you'd receive just $1,500 from the insurance company if your car is stolen or totaled — assuming you owned the vehicle outright. Lowering your deductible to $250 or $500 may make more sense financially and is unlikely to raise your monthly premiums by more than a few dollars.

You should consider if you need comprehensive and collision coverage at all. Many older vehicle owners don't insure their lower value cars against loss, but that's a personal decision. Could you afford to use emergency savings to replace your older vehicle? It may save you money on your premiums by foregoing those coverages, but it comes down to your financial situation and ability to pay for repairs or replacement of your car.

3. Know what it's meant to cover.

Remember, insurance is designed to protect you from a financial setback, not cover small losses you can afford to pay out of pocket. In cases of minor damage, it might not make sense to file a comprehensive insurance claim.

For example, if a branch falls on your car and causes $400 in damage, but you have a $500 deductible, there's no use in filing a comprehensive claim.

You'll simply pay the $400 repair bill out of pocket. You'll still need to let your insurance company know that you've had damage to your car even though you aren't filing a claim. Some policies include separate deductibles for specific types of minor damage, such as cracked windshields.

4. Avoid the extremes.

Choosing a high deductible to lower your monthly payments may seem like the best choice when selecting coverage, but that's not always true. It's crucial to find coverage that's best for you. The balance of risk is found somewhere in the middle with a premium that fits your budget and a deductible that won't break the bank.