Pace Law

How to decide auto insurance deductible

December 9, 2019

Automobile insurance is one of the biggest costs associated with vehicle ownership. New drivers, in particular, have to pay significantly higher premiums compared to experienced drivers. No wonder motorists in Ontario are always on the lookout for ways to reduce their insurance premiums.

The auto insurance deductible is one of the few ways in which drivers can reduce their insurance premium. So should you opt for a very high deductible which will reduce your monthly premium?

In this article, we are going to explain how the car insurance deductible works, break down the pros and cons associated with both a lower and a higher deductible, and help you understand how you can find the right deductible for you.

Remember, auto insurance claims are complex and opaque. Make sure you speak to a car accident lawyer in Toronto about your claim.


What is a car insurance deductible?

Very simply, the deductible in auto insurance is the amount you pay when you make a claim. The deductible does not depend on the type of accident but whether a claim has been paid. Therefore, a deductible may be payable due to accidental damage at home, collision with another vehicle, and even in a pedestrian accident.

Types of auto deductibles:

Collision deductible – Paid when the claim arises out of a collision in which you were wholly or partly ‘at-fault’

Comprehensive deductible – If you have comprehensive coverage and your vehicle is damaged, lost or stolen by another (not every driver has comprehensive coverage)

Direct compensation-Property Damage – The deductible may be subtracted from the compensation you receive for damage to your car and belongings in an accident (DC-PD)

Other ‘perils’ deductibles – If you have opted for optional insurance coverage (‘Specified Perils Coverage’), your insurance company may require deductibles for those claims as well.

A driver chooses his or her deductible when purchasing car insurance. That sum may range from $0 (invisible deductible) to $5,000. In Ontario, the average deductible is estimated to be $500.


How the auto insurance deductible works

To understand how the auto insurance deductible works, let’s take an example of David, a car driver in Ontario. David has chosen $1,000 as his auto insurance deductible.

One day while driving home, David has a collision with another vehicle. The total cost of damage and injury is calculated at $15,000. Here’s how much David will have to pay?

David is completely at fault – $1,000 paid by him and $14,000 by the insurance company

David is 50% at fault – $500 paid by him and $6,500 paid by the insurance company

David is not at fault – David pays nothing, the insurance company pays nothing

This is a very simple illustration of how auto insurance deductible works. Every auto insurer has different conditions for payment of the deductible. If you think your insurer is pressuring you to pay more deductible than you believe is due, get in touch with an experienced Toronto insurance claim lawyer.


Do you pay the deductible in a no-fault accident?

If, after an accident, you are determined to have been not at-fault, you may not be required to pay the insurance deductible. However, an insurer may require payment of the deductible before it processes the claim — in which case, you will be refunded the deductible when the processing of the claim is concluded.

Whether or not any amount of the deductible is payable depends on the type of claim you are making.

DC-PD claim – You are not required to pay the deductible, as it falls under the mandatory aspect of insurance coverage in Ontario.

Collision claim – You will not be required to pay the deductible, if you are not at fault in an accident

Comprehensive claim – Even if you are not at fault in a claim for theft, fire, or vandalism to your car, you will have to pay the insurance deductible

In some instances, your insurance company may reduce the compensation you are paid by the amount of the deductible your policy requires, even if you are not at-fault. Find out how insurance companies determine fault in an accident.


Pros and Cons of choosing a high (or low) deductible


High deductible Low deductible
Lowers premiums Lets you make full use of your policy
Significant savings on high value vehicles Choose lower deductibles for important coverage only
Makes sense if your vehicle is very old Maintain a small emergency fund
Maintain a larger emergency fund Increases premiums
Can dissuade you from making valid claims  


What deductible should you get as a new driver in Ontario?

A new driver in Ontario will be relatively unfamiliar with driving conditions in the province, unfamiliar with the roads, and will have little driving experience. As a result, the likelihood that a new driver will have an accident is greater than that for experienced drivers. As such, lower deductibles are the better option for new drivers.

Moreover, insurance premiums for a driver with limited experience as a motorist will be higher than for a driver with years of a clean driving record. A lower deductible amount will seem like a smaller percentage increase.


Insurance claims explained

First steps of insurance claims | How insurers reduce compensation | Statutory insurance deductible


Dangers of cheap auto insurance

Beware! ‘Cheap’ auto insurance with very high deductibles may seem lucrative at first, but it can cost you dearly. Some insurance companies require an upfront payment of the insurance deductible before processing the claim. In that case, you will be on the hook for a large amount of money even if you are not at fault in an accident. If you are unable to pay the deductible:

  • You may be denied insurance at a later date
  • Premiums after a claim has been made may increase significantly
  • The vehicle may not be repaired under insurance


How to choose auto insurance deductible

Choosing an auto insurance deductible is a personal decision and will vary from person to person. As your financial situation changes, you will be more or less comfortable with the amount of risk you are willing to assume.

It may seem lucrative to opt for a high deductible and save on monthly premiums; but if you are not in a position to foot the heavy deductible, the risk you assume is that your claim may be refused.


Is a higher deductible better for car insurance?

Generally speaking, a lower deductible is better for car insurance than a higher one. It lets the driver make claims against his or her insurance policy without depleting their own finances.

If you are unable to pay a high deductible, your insurance company can refuse to pay you compensation for the claim. Moreover, if your vehicle has been sent for repairs and you are unable to pay the insurance deductible, the auto shop can keep your vehicle.


How much should collision deductible be?

There is no correct answer for how much your collision deductible should be. As a rule, try and keep your deductible as low as is financially feasible for you. In Ontario, the average auto insurance deductible is $500, though insurers can offer much higher amounts.


Is it okay to go for a $5000 deductible?

$5,000 is not an insignificant amount. If you are choosing such a large deductible, be sure to maintain a similar amount in reserve. For high value cars, a larger deductible can make financial sense since it can significantly reduce the insurance premium.


Have you or a loved one been involved in a car accident? Speak to a car accident lawyer at Pace Law Firm immediately. We help clients navigate insurance claims, both large and small, and help ensure that fault in the accident is attributed correctly. We are proud to represent clients across Ontario.

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191 The West Mall, Suite 1100
Toronto, ON M9C 5K8
Phone: 1-877-236-3060
Fax: 416-236-1809

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