The Relationship: Inverse

• Higher deductible, lower premiums: Selecting a higher deductible means you agree to pay more out-of-pocket if you file a claim. In exchange for taking on more financial risk, your insurance company charges you lower monthly premiums.
• Lower deductible, higher premiums: Choosing a lower deductible means you’ll pay less out-of-pocket when filing a claim, but your monthly premiums will go up because the insurance company is taking on more of the financial risk.

How to Think About It:

Think of it like a trade-off:

• High deductible = Lower risk for the insurance company, so your premiums are lower.
• Low deductible = Higher risk for the insurance company, so your premiums are higher.

Example:

Let’s say you have two policy options for your collision coverage:

• Option 1: $500 deductible
• Option 2: $1000 deductible

If the premium for Option 1 (lower deductible) is $100 per month and Option 2 (higher deductible) is $75 per month, you’re essentially paying $25 more per month in exchange for having your insurance cover an additional $500 of your potential costs in case of an accident.

Finding the right balance

Choosing the right deductible is a matter of balancing:

• Your comfort with upfront costs: Can you afford a higher deductible if an accident occurs?
• Your risk tolerance: Are you a frequent driver in a high-risk area where a claim might be more likely?
• Premium savings: Is the monthly premium reduction worth the higher potential out-of-pocket costs?

Please note: The deductible impact on premiums can vary between insurers. Always get quotes with different deductibles to compare the savings accurately.