What you need to know about your car insurance deductible in Canada

When it comes to car insurance, one of the most important (but often overlooked) details is your deductible. So, what does “car insurance deductible” really mean? According to the Insurance Bureau of Canada (IBC), it’s the amount you agree to pay out of pocket when filing a claim, before your insurance company covers the rest.

Understanding your car insurance deductible meaning isn’t just understanding insurance jargon; it’s knowing how much you'll pay after a fender bender, theft, or storm damage. Plus, it also plays a key role in how much you pay for your premium. Here's all you need to know about car insurance deductibles.

How does a car insurance deductible work?

In the world of auto insurance, a deductible is the amount of money you agree to pay out of pocket when you file a claim. Once you've paid, your insurance provider covers the rest of the claim, up to the coverage limits of your auto insurance policy.

For example, let’s say your vehicle is damaged in a collision, and the repairs total $4,500. If your collision deductible is $1,000, you’ll pay that $1,000, and your insurer will cover the remaining $3,500.

We feel it's important to note that a deductible is not the same as a premium. Your premium is what you pay monthly or annually to keep your policy active, whether you make a claim or not. Your deductible only comes into play when you do file an insurance claim.

What are the different types of auto insurance deductibles in Canada?

In Canada, your car insurance coverage can include different types of deductibles, each tied to specific kinds of insurance claims. Here’s a quick breakdown:

Collision deductible

This applies when your car is damaged in an accident. Generally, it applies regardless of who’s at fault.

For example, if you hit a tree or another vehicle, you'll need to pay your collision deductible before your insurance company covers the cost of repairs to your vehicle.

Comprehensive deductible

This covers non-collision damage, like theft, vandalism, fire, hail, or even a cracked windshield. Some drivers opt for a lower deductible here since these events are less predictable.

For example, if a branch falls on your car during a storm, your comprehensive deductible would apply to your claim.

Specified perils deductible

With specified perils, you’ll only be covered for named risks (e.g., fire, theft, falling objects, etc.). This option is more affordable, but it's generally riskier if something unexpected happens.

For example, if a freak hailstorm rolls into town and damages your vehicle, but hail isn't listed on your policy as a covered peril, you wouldn't have to pay a deductible because your claim would be denied.

All perils deductible

This combines both collision and comprehensive coverage, but with fewer exclusions, offering broader protection. It’s common in provinces like Manitoba and Saskatchewan under public insurance plans.

Direct compensation-property damage (DCPD) deductible

DCPD applies when you’re in an accident caused by someone else, and your own insurance company covers the damage to your car. In most no-fault provinces (like Ontario), a DCPD deductible is $0. However, you may be able to choose to opt into one to help reduce your premium. Just keep in mind that you'll have to pay your deductible for a DCPD claim even though the other driver was at fault.

Hit‑and‑run deductible

If you're in British Columbia and have ICBC Collision coverage, it includes hit-and-run protection, which means you pay the same deductible as your ICBC Collision coverage. However, if you choose stand‑alone Hit‑and‑Run coverage instead, there’s a flat $750 deductible for vehicle damage claims under this coverage.

Disappearing deductible

Some insurance companies offer what's also known as a "diminishing" or "vanishing" deductible that shrinks for every year you go claim-free. For example, a $500 deductible could reduce by $100 annually, potentially dropping to $0 after five claim-free years.

Escalating deductible

This is the opposite of a disappearing deductible. Basically, your deductible increases if you make frequent claims. It’s a way for insurance providers to discourage minor or repeated claims and is more common in commercial or high-risk policies. For instance, ICBC may apply an escalating deductible to customers with more-than-average comprehensive claims, with amounts ranging anywhere from $500 up to $2,500.

What are the average car insurance deductible amounts in Canada?

Here in Canada, car insurance deductibles typically range between $250 and $2,500, though this can vary by province, insurance company, and the type of claim you’re making. Here are some examples:

How do car insurance deductibles affect your insurance premium in Canada?

According to the IBC, choosing a higher deductible is a simple way to lower your monthly auto insurance premium. Basically, when the deductible amount increases, your premium also decreases. But by how much?

You could save anywhere from 5% to 30% or more on your annual premium. From what we gather, it seems to mostly depend on your policy and by how much you're increasing it. For example, if your deductible was $500 and you increased it to $1,000, you'd likely see less of a percentage savings than someone who started with a $250 deductible and increased it to $2,000.

Let's say your annual premium is $2,006 (the average premium for Ontario as of October 2024, according to the Financial Regulatory Services Authority (FRSA)) and you have a $500 deductible. You contact your insurance company and tell them you want to increase your deductible amount to $1,000, and they tell you that you'll save 15% off your annual insurance costs. Here's what that might look like:

While yes, you'd have to pay $500 more if you ever need to file a claim, but if you manage to stay claims-free, that's just over $300 a year you'd save on your car insurance premiums in this scenario.

What are the pros and cons of raising or lowering your deductible?

If you're still unsure of whether you'd rather have a higher or lower deductible, here's a list of pros and cons to help you out:

What factors should I consider before changing my deductible?

Choosing the right car insurance deductible(s) isn’t just about your premiums. You also need to consider things like your lifestyle, budget, and how often you’re likely to make a claim. Here are some things to consider before making a change to your deductible(s):

What's your financial situation?

Can you comfortably afford to pay a $1,000 deductible if you need to file a claim tomorrow? If not, sticking with a lower deductible might save you from unnecessary financial stress. For example, a college student with a part-time job may choose a smaller deductible to avoid having a large out-of-pocket expense if something happens.

Where do you live?

Urban areas often mean more traffic and more fender benders. A lower deductible can make sense if you live in a busy city like Vancouver, Toronto, or Montreal, where collisions and car theft are more common. On the other hand, someone who lives in a quiet Alberta suburb with less congestion is less likely to file claims and may choose a $1,000 deductible to save on their annual premium.

What's your driving and claims history look like?

If you’re prone to car accidents or regularly file insurance claims more than once a year, a lower deductible can help you reduce the sting of repeat out-of-pocket expenses. But if you have a clean driving record, you could benefit from saving potentially several hundred dollars on your annual premiums with a higher deductible.

What if my claim amount is less than my deductible?

If the cost of the damage is less than your deductible, your insurance provider won’t cover anything, and you’ll have to pay the full amount out of pocket.

For example, if you have a $1,000 deductible and you're quoted $800 for your vehicle repairs, it’s not worth filing a claim. Since you'd have to pay that $1,000 to your insurance company first, and that's more than your $800 repair quote, you wouldn't get anything back for your repairs.

Here's a tip. While you're typically required to call your insurance provider about any type of collision as soon as possible, you don't have to file an insurance claim immediately. While the timeline varies, you may have up to 12 months, according to the Government of Canada, though you should always check your policy or ask your provider for their specific timeline requirements. After you've notified your provider, get a quote for the damage and see how much the repair costs. Then you can decide if it's worth going through the claim process.

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