What Are Out-of-Pocket Damages?

Woman on phone at car crash

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Out-of-pocket damages are the costs you will be responsible for, even if you have car insurance, when you are in an accident or incur other physical or monetary damage.

Key Takeaways

  • Out-of-pocket damages are the expenses you are responsible to pay, even if you have auto insurance.
  • Sometimes it makes sense to pay these even if your insurance would cover them to avoid an insurance premium increase.
  • The higher your out-of-pocket deductible, the lower your insurance premium will be.
  • Plan ahead so you're not surprised by costs for out-of-pocket damages.

What Are Out-of-Pocket Damages?

Out-of-pocket damages are paid from your pocket, wallet, or bank account and cover repairs to a damaged vehicle or property. You can also pay out of pocket if you don't want your insurance rates to skyrocket, even if your insurance company would cover the damage.

If you don’t have car insurance, any damage to your vehicle will result in an out-of-pocket payment, but you really want to avoid that scenario—even if you live in a state where car insurance isn’t mandated by law. Where such insurance is required, you'll face steep legal penalties in addition to financial repercussions regardless of where you live if you get into an accident or cause other damage with your vehicle while uninsured.


In a fender-bender or other small incident, knowing when to pay out of pocket and when to file a claim can actually save you money in the long run.

How Out-of-Pocket Damages Work

With most insurance policies, you’ll have a set deductible that you will be responsible for paying before your insurance coverage kicks in and your insurer foots the rest of the bill.

Expect to pay out of pocket for your deductible. The deductible is your responsibility for lots of different claims, usually physical damage claims such as comprehensive or collision. You select the deductible at the time you add the vehicle to your policy. Your insurance deductible will need to be paid when you pick your vehicle up from being repaired.


Deductible amounts can vary greatly per person and per coverage. The higher your deductible, or out-of-pocket expense, the cheaper your car insurance premium is.

Sometimes damage occurs to your vehicle and it costs less to repair it than what your deductible is. That means you will be covering the cost to repair the vehicle. Your car insurance only covers damages that exceed your deductible amount.

Types of Out of Pocket Damages

Minor Accidents

Sometimes it is in your best interest to pay the damages which occur from a minor accident. If the cost to repair the damage is a manageable amount above your deductible, you could save money in the long run by avoiding future surcharges to your policy from filing an at-fault claim. It can be a tough call when it comes to this out-of-pocket expense, but the situation does arise from time to time.

Total Loss Accidents

Probably the worst out-of-pocket expense is when you owe more than your vehicle is worth and you have a total loss accident. If you do not have gap coverage, the difference between what your vehicle is actually worth and what you owe will be an out-of-pocket expense. It is recommended to carry gap insurance to protect yourself when you owe more than a vehicle is worth. In some cases, it could be thousands of dollars.

For example, John has bad credit and is financing a new vehicle. He took out an extended 72-month loan with a high-interest rate. One year after his purchase he was in a bad accident that totaled out his vehicle. John still owed $15,000 on his vehicle, but the vehicle’s actual cash value was only $12,500. His insurance company covered $12,000 after his deductible. John's out-of-pocket expense totals $3,000 to finish paying off a vehicle he can no longer drive.

When you hear people speak of an emergency fund, out-of-pocket insurance expenses fall into that category. Always keep at least enough money to cover your insurance deductible on hand if at all possible. It will make life a lot less stressful in case of a car accident.


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