Looking to insure your home or vehicle? You may have come across important terms like deductible and premium. While the premium is the monthly payment for your insurance plan, the deductible is the amount you will pay out of pocket before your benefits kick in. The higher your deductible, the lower your premium will be, and vice versa. Show
When deciding which arrangement works best for you, you should consider factors like your budget, your financial situation and, depending on whether you're buying home or car insurance, the area in which you live as well as your driving record. Let's break down high deductible vs. low deductible below. Insurance companies charge deductibles to give you an incentive to take reasonable precautions and share the responsibility. Is it better to have a high or low deductible? That all depends on your financial situation. If your finances are robust enough to pay a higher deductible, you'll get the benefit of a lower monthly insurance bill. This could work out in your favor if you don't think you'll need the maximum amount of coverage to which you're entitled. Choose a lower deductible, however, and pay less money upfront when disaster strikes. While you won't have to dip as far into your nest egg during an emergency, you will need to allocate enough room in your budget to pay a higher insurance bill. With this type of plan, managing your expenses in times of crisis can be much easier as they are more predictable. You may also benefit from higher coverage limits. Automobile Insurance ConsiderationsWith vehicle insurance, you only pay a deductible towards comprehensive and collision coverage of your own property. That includes theft, vandalism or accidents in which you are at fault. If you damage someone else's property, however, or injure another person, there's no deductible and your insurance policy will cover the entire cost of their repairs or medical care up to the policy limits—that's called liability coverage. Deductible amounts may vary between $250 and $1,000. Keep in mind that at-fault incidents can stay on your insurance record for several years, which will increase your premiums, so you may not want to file a claim every time. If you're leasing or financing your car or living on a tight budget, a lower deductible can give you more peace of mind. If you have a clean driving record or live in a low-traffic city, getting a high deductible could save you more money in the long run. At the end of the day, the best option is the one that works for your current financial situation. Homeowners Insurance ConsiderationsThe same inverse relationship applies when it comes to the deductible and the premium amounts for homeowners insurance. As a homeowner, however, your insurance deductible might be a percentage of your total coverage, a specific dollar amount or a hybrid of the two, depending on the type of claim. As with car insurance, you would only pay a deductible if you file a claim. Because hurricanes, earthquakes and flooding often require additional coverage on top of a standard insurance policy, it's best to inquire with your insurance rep for more information as rules may vary from state to state. How to Calculate Your Insurance PremiumYour monthly premium isn't exclusively determined by the deductible you choose to pay. There are a few other important factors that insurance companies will take into account, including:
Your insurance needs may vary from one year to the next. To find the product that's best for you, consider getting the help of an independent insurance agent. Connect with us to find your next insurance policy.
It’s no secret that insurance terminology can be confusing. You don’t need to know it all — that’s why you work with industry experts to make sure you have the right coverage — but it’s helpful if you understand at least a few key things. Two particularly important concepts are your premium and your deductible. Read on for the lowdown of what they are, how they affect each other, and how to pick the best ones for you. What is an insurance premium?Your insurance premium is the regular payment you make (usually at a monthly interval) to have your insurance policy. It’s essentially the cost of your insurance, or what you’re paying to have access to a pool of resources if something goes wrong. Your insurance premium rate depends on several factors, including:
For example, you can take a look at how insurance carriers might determine your auto insurance rates here. What is an insurance deductible?Your insurance deductible is a preset amount that you have to pay before your insurance company will help you cover any losses. It starts over at the beginning of each year or policy term. You can think of your deductible as the maximum amount you’ll ever have to pay so long as you keep your policy. If you experience damage above your deductible, your insurance will take care of it for you! For example, if your deductible is $2,000 and a storm rages through your neighborhood resulting in $40,000 of home damage, you’ll only be responsible for that $2,000. Your insurance premium and deductible have an inverse relationship. As one increases, the other decreases — so a policy with a lower monthly premium will typically have a higher deductible, and a policy with a lower deductible will typically have a higher premium. It’s a good idea to explore your premium and deductible options to choose the cost framework that works best for your unique circumstances. Read on for a few tips — and don’t hesitate to reach out to your local agent if you have any questions! When does having a high premium make sense?As a general rule, it’s a good idea to have a higher premium and a lower deductible if you expect that you’ll use your insurance often — or if you would be unable to cover a large out-of-pocket expense at any given moment. Here are some situations where this might be the case:
When does having a high deductible make sense?A high deductible could be the right choice for you if you don’t think you’ll have to file a claim very frequently. This way you’ll have a lower premium — meaning more money to save or spend each month — without the added worry of what you’ll do if something goes wrong. Here are some situations where a high deductible makes sense:
Reach out to your agent with any questionsIf you still have a few questions about your insurance premiums and deductibles or want to talk through your options with someone who knows their stuff, don’t hesitate to get in touch with us! We’ll make sure every piece of your policy is right for you. Why does a higher deductible lower your premium?The higher you set your deductible, the lower your premiums will be. That's because you're agreeing to take on more of the cost of damage to your car. Conversely, the lower you set your deductible, the more you'll pay for car insurance, because you'll be paying less out of pocket.
What is an advantage to having a high deductible?A high deductible plan (HDHP) can be combined with a health savings account (HSA), allowing you to pay for certain medical expenses with money free from federal taxes. A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.
What happens to the insurance premium if you were to increase the deductible?Will increasing my deductible actually save me money? The short and simple answer to this question is yes; if you increase your deductible, you will save money on your premiums. However, this will truly depend on your own individual circumstance. In short, the higher deductible you choose the lower the premium..
Is it better to have a high deductible or worse?High-deductible health plans usually carry lower premiums but require more out-of-pocket spending before insurance starts paying for care. Meanwhile, health insurance plans with lower deductibles offer more predictable costs and often more generous coverage, but they usually come with higher premiums.
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Why does having a higher deductible lower your insurance premiums
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