How Deductibles Affect Premium Price

What is a deductible?

A deductible is the amount you pay out of pocket before coverage kicks in. If your auto policy has a $1,000 deductible and an accident causes $5,000 in damage, you pay the first $1,000 and the insurer pays $4,000.

The trade-off

• Higher deductible → lower premium. You absorb more risk, so the insurer charges less.
• Lower deductible → higher premium. The insurer absorbs more risk, so you pay more up front.

Examples in practice

• Auto: a $500 deductible might mean $120/month, while $1,000 could bring it closer to $100/month.
• Home: a $1,000 deductible may run $1,200/year, while $2,500 could drop it nearer $1,000/year.

Exact numbers vary by insurer and state, but the pattern holds.

Choosing the right deductible

1. 1Could you comfortably pay the deductible out of pocket tomorrow?
2. 2How often do you actually file claims?
3. 3Does the monthly savings justify the bigger hit when something happens?