What is a deductible in auto insurance?

Car insurance is mandatory for drivers in Canada, and it often requires paying a deductible, which is the portion of a damage claim that the insured person pays. Deductibles are standard on several types of insurance, including home insurance and car insurance.

How does a car insurance deductible work? Let’s explore this.

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How does a car insurance deductible work?

There are several coverage options when it comes to buying car insurance in Canada, and a deductible doesn’t apply to all of them. For example, you wouldn’t have to pay a deductible on a liability insurance claim.

The two main types of coverage where a deductible comes into play are collision insurance and comprehensive insurance. (In Manitoba, these types of coverage are rolled into basic all-perils coverage.)

What is comprehensive coverage?

Comprehensive coverage is for when your car is damaged, but not by a collision—but, say, a tree falls on it in a windstorm, it’s destroyed in a fire or it’s vandalized—or if it is stolen.

If you’re covered by public or hybrid insurance (applicable in B.C., Saskatchewan, Manitoba or Quebec), there may be some situations where you won’t be required to pay a deductible for some comprehensive claims. For instance, B.C. drivers who pay for comprehensive coverage don’t have to pay a deductible for certain types of windshield repairs. (Not sure what to do for a repair? Find out if you should go to a repair shop or a dealership.)

Depending on the province where you live, comprehensive coverage may be optional.

What is collision coverage?

Usually, collision coverage applies when another object collides with your car or when your car rolls over.

It’s important to see what your province or territory considers a collision. For instance, the Financial Services Authority of Ontario (FSRAO) defines “another object” as:

Another vehicle or a trailer that is attached to the vehicle and covered by your insurance policy
The surface of the ground
Any object in or on the ground

A deductible applies to collision insurance when you are at least partly at fault for an accident.

If you lease or finance your vehicle, you’re probably required to have collision coverage, according to the Insurance Bureau of Canada.

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What about DCPD?

If you live in a province with direct compensation for property damage (DCPD) coverage—Alberta, Ontario, Quebec, Nova Scotia, New Brunswick, Newfoundland and Labrador, or P.E.I.—this is the part of an auto insurance policy that covers you if someone else is at fault for collision damage. You usually don’t pay a deductible with DCPD, but it may be possible to have one added, which could lower your premiums.

DCPD is mandatory in the provinces listed above except in Ontario, where it became optional as of Jan. 1, 2024. Declining DCPD will reduce your auto insurance premiums slightly, but it also means you won’t be covered in the event of a collision—even if you’re not at fault—and you won’t be allowed to purchase optional collision or all-perils coverage. Plus, if you have a financing or leasing agreement for your vehicle, opting out of DCPD likely means breaching that agreement.

Even a minor car repair after a collision can cost big bucks, so consider carefully before declining DCPD. If you do opt out of DCPD, you can always change your mind and opt back in while your policy is active.

How much are deductibles?

When you set up your car insurance, you choose the amount you’ll pay if you have to make a claim. You’ll select a different deductible amount for comprehensive and collision.

Deductibles in Canada range from hundreds to thousands of dollars (if you have a really fancy car, be prepared to pay more).

Some Canadian provinces have a default deductible amount everyone starts at—for instance, it’s $500 in Ontario and $750 in Manitoba—but you can choose to pay less or more, depending on your situation.

The amount of deductible you choose impacts the cost of your premiums. Generally, the higher the deductible, the lower the premium. So, if you think the risk of your car being damaged is low, you may want to go for a higher deductible in exchange for laying out less money ahead of time.

A higher deductible can result in savings of 20% to 25% on your car insurance premiums.

Your deductible amount will also likely affect whether you make a claim or not. It wouldn’t make sense to make a claim for a $300 repair if your deductible is $500, for example.

If you live in British Columbia, making several claims on comprehensive insurance may mean you will be required to pay an escalating deductible, ranging from $500 to $2,500 according to the ICBC.

What is a disappearing deductible?

Some Canadian insurers offer a disappearing deductible, sometimes called a vanishing deductible. This type of coverage rewards drivers by reducing their deductible after each claim-free year, up to a certain number of years (it varies by province).

Some insurers discount the deductible by a percentage (20% is a common amount) while others bring it down by a fixed annual dollar amount (say, $50 or $100).

Depending on which insurer you choose, you may have to pay for a disappearing deductible, so consider if it makes financial sense, based on how likely you are to make a claim. A disappearing deductible may only be available to qualifying drivers, as determined by the insurance company.

Should you increase your auto insurance deductible?

The amount of deductible you decide on can impact your premium. The higher the deductible, the lower the premium, generally speaking. The reason is that a higher deductible means you are less likely to make a claim.

However, with a higher deductible, more risk is shifted to you. If you’re unlucky enough for your car to be damaged a couple times or more within a short time period, then you may have to pay hefty repair bills out of pocket.

Other ways to lower your car insurance premiums

If increasing your deductible doesn’t make financial sense for you, here are other ways to trim the cost of auto insurance.

1. Compare auto insurance quotes.

It never hurts to shop around. Seek out multiple car insurance quotes from different providers. An online comparison tool can help you get started.

2. Bundle your home and auto insurance.

You can often get a discount on car insurance if you choose the same insurer for two or more insurance products like car insurance, home insurance or tenant insurance.

3. Improve your driving record.

Insurers consider how risky you are as a driver when they offer you a quote for car insurance (the more dings, the higher the rates). If you’re someone who’s had no claims, at-fault accidents or driving infractions, then keep up the good work. If you do have some of these on your driving record, do your best to limit them in the future so you can qualify for lower rates.

4. Use winter tires.

Winter tires reduce the risk of an accident, so some insurers will offer drivers a discount if they use them. (Tire-shopping tips: Your guide to buying winter tires in Canada.)

5. Install anti-theft devices.

You can get lower premiums from some insurers if you take steps to protect your car from being stolen. Installing an anti-theft device like a steering column lock or an alarm system can reduce your car insurance rate. Check with your insurer what qualifies for a discount.

6. Decrease the amount of time you spend behind the wheel.

Your premiums will be higher if you use your car for daily commuting or long trips on a regular basis, because the more you drive, the greater your risk of an accident. Consider carpooling or using public transit for commuting, if that’s an option for you. You may be able to save money on car insurance premiums if you do.

7. Consider your coverage options.

The less coverage you have, the lower your premiums will be. And not all vehicles need all types of insurance coverage. Collision coverage may not make sense if you drive an older car, for example. And you may not need to add any endorsements (extra types of coverage). Read the fine print carefully, then pick the coverage that works for you and your budget.

8. Ask your insurer about other discounts.

Your insurer might offer discounts for things like insuring multiple vehicles, completing a certified driver training course, being an alumnus of certain post-secondary schools, driving an eco-friendly vehicle, being a retiree or senior, and more. Some even offer a discount for submitting your insurance application online.

Choose your own deductible

A car insurance deductible is designed to reduce risk for insurers and help drivers manage their insurance costs. Used wisely, this tool can help you get the most out of your car insurance.

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