What is an Auto Insurance Deductible in Ontario?

whats an insurance deductible

Meaning and Explanation of an Insurance Deductible

In general insurance, a deductible is a provision in the insurance contract whereby the policyholder agrees to pay a certain amount for each covered loss in return for a reduced premium. 

An insurance deductible is an amount of a covered loss that a policyholder must pay before the claim is paid in full by the insurance company.  The deductible is subtracted from the total amount of the insurance settlement and applies only to your damages.  A deductible typically applies for each claim made in a policy year.

A deductible is a cost-sharing provision meant to reduce the number of smaller claims, reduce claims costs for insurance companies, and lower the overall premium for the policyholder. 

Losses under your deductible are paid by you, which allows the insurance company to pass on the cost savings in the overall premium to you.  The use of deductibles also promotes prevention consciousness.

Deductibles on Car Insurance in Ontario

Deductibles on car insurance are similar to deductibles found in any other type of insurance product.

Most deductibles on personal vehicle insurance are tied to physical damage coverage such as collision, comprehensive and all-perils coverage.  For example, you may have a $500 deductible on collision coverage and $300 for comprehensive.  Another popular scenario is either a $500 or $1,000 on All-Perils coverage.

Deductibles on personal vehicle insurance are typically exclusive to physical damage coverages.  However, it’s not unusual to see commercial vehicles with a deductible on liability coverage.

Here’s an example of how a deductible works for a personal auto insurance claim:

  • Jimmy struck a light post causing repairable damage to the front of his vehicle.
  • Jimmy has a $500 deductible on his collision coverage. 
  • The total damages to his vehicle are $5,000.
  • Jimmy would need to pay the first $500 and the insurance company would pay the remainder. 
  • Jimmy pays the repair shop his $500 deductible to take his repaired vehicle back
  • The insurance company is invoiced the remaining $4,500

Deductible vs Premium 

A deductible is a provision in the insurance contract where you agree to pay a specified amount each time you decide to put in a claim.  The exception to this rule is seen in health insurance where a deductible is only paid once, in each policy term.

For example, an auto insurance policy with a $500 deductible on collision coverage means that you are responsible for the first $500 of the claim, and the insurance company pays the remainder.

high-premium-vs-high-deductible

In health insurance, a policyholder may have a $100 annual deductible that needs to be paid only once before the insurance company can cover a claim.  Claims submitted after the initial deductible is paid are not subject to further deductibles.

Insurance Deductible vs. Insurance Premium.

The premium is the total cost of an insurance policy. The premium is made up of the following:

  • Pure Premium – is the amount required to pay claims.
  • Development Factors – are adjustments to reserves needed to pay out claims which have yet to be settled
  • Trend Factors – adjustments applied to all losses to reflect what they would probably cost the following year.
  • Acquisition Costs – Costs incurred by the insurance company to conclude a contract of insurance with the policyholder.  Acquisition costs typically include a commission to the insurance broker or agent and advertising and promotional expenses.  
  • Administrative Costs – expenses that the insurance company needs to operate the business.  Examples could be leasing or buying a building, equipment, and employee salaries.
  • Profit – revenue after all expenses are paid.

As you can see, the insurance premium is something completely different than a deductible.

Disappearing Deductible

A disappearing deductible is a deductible that reduces in amount each year, expressed as a specific dollar amount or a percentage. 

The purpose of a disappearing deductible, (also called a vanishing deductible), is to reward policyholders with a reduced deductible for every policy term that they remain accident-free. Disappearing deductibles promote customer loyalty and offer more value to the policyholder.

Here is an example of how a disappearing deductible works:

  • John has a $1000 All-Perils deductible on his 2020 Honda Pilot
  • John purchased a “disappearing deductible” insurance floater, rated at 20% off the $1,000 deductible for every year that he remains accident-free.
  • John got into a single-vehicle accident in 2025 and put in a claim for the damages to his vehicle.
  • John would normally be responsible for the $1,000 deductible, but because he had been accident-free for 5 years up to the time of the accident in 2025, the deductible would have completely vanished.
  • 20% of $1,000 is $200. John saved $200 every year on his deductible. $200 x 5 = $1,000
  • John does not have to pay for his entire deductible.

Keep in mind, that insurance companies who offer “disappearing deductibles” may have slight variations.  Always read the policy wording before committing to a purchase!

Popular questions about insurance deductibles in Ontario:

Having a $1,000 deductible means that you have a provision in your insurance policy whereby you agree to cover the first $1,000 towards a covered insurance loss before the insurance company pays the remainder. 

The point of a deductible is to discourage small claims and to allow the policyholder to save on the overall insurance premium. The higher the deductible, the more you stand to save on your overall insurance premiums.  Conversely, if you decide to lower your insurance deductible the premium will go up.

No. A body shop cannot waive a deductible! The only way to have a deductible waived is from the authority of the insurance company, usually confirmed by the claims adjuster. 

Choosing between a $500 and a $1,000 deductible is a matter of personal risk tolerance.  The overall premium would be slightly more with a $500 deductible, but your out-of-pocket expense is less should you have a claim. With a $1,000 deductible, your overall premium would be slightly less, but your out-of-pocket expense would be more should you have a claim. 

Choosing between higher premiums over a higher deductible is a personal preference tied to your risk tolerance.  Are you prepared to pay a higher deductible in exchange for a lower premium, or would you rather have a lower deductible and pay a higher premium?  This is the question you would need to ask yourself.

The best way to help choose is to have your insurance agent or broker quote you with different deductible amounts to calculate the actual cost savings.

No, the premium does not go towards a deductible. A deductible is a cost-sharing clause in the insurance contract to help discourage smaller claims and cultivate prevention consciousness.

The premium is the total cost of the insurance policy.

Yes, the higher the deductible the lower your premium will be. 

Not meeting your deductible means that the damages you’re claiming are less than your deductible.  Essentially, your insurance company wouldn’t have a financial interest in your claim and, therefore wouldn’t be able to respond to the loss.  The loss or damages would be 100% of your financial responsibility. 

Insurance does not respond to a loss if that loss is under your deductible. Damages up to your deductible are your financial responsibility.

Peter Martire, CIP, CRM, RIBO – Executive Editor and Insurance Advisor

Peter has been working in the insurance industry since 2005. He has over 18 years of experience adjudicating complex auto insurance claims and sales and service brokering. In March of 2024, he partnered with Begin Insurance Inc. as a Senior Insurance Advisor. He also serves as Executive Editor of carinsuranceinontario .ca.

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