Do You Want A
High Or Low Deductible? (Costs & Coverage)

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Do you want a high or low deductible? This is a question asked by many people when they are buying insurance because policies with higher deductibles have lower monthly premiums than those with lower deductibles.

Do You Want A High Or Low Deductible?

Do You Want A High Or Low Deductible?

Most types of insurance have choices on how high or low your deductible will be. They can vary from nothing to very high into the thousands of dollars. The deductible must be paid before the insurance kicks in and makes a payment on your behalf. Having a lower deductible means that you will have less out-of-pocket costs.

Pros: When you have lower insurance deductibles it means that if something happens (you get sick, your house is damaged, you're in an accident, etc.), you will have less out-of-pocket costs than if you had a high deductible insurance.

Cons: In order to pay for the lower out-of-pocket cost, the insurer will ask that you pay a higher monthly premium to make up for their potential loss. If you're in an accident, they'll have to pay more than if you had a higher insurance deductible.

All pros and cons are predicated on risk and reward. Choosing a lower insurance deductible also needs to be based on the risk and potential reward for doing so. So if you raised your comprehensive and collision deductibles, your premium would go down but your out of pocket costs would be higher if you have to file a claim.

Risks & Rewards: Insurance companies essentially create a risk-sharing pool. Not everyone is going to have an accident, and the insurance company is banking on that. The premiums go into the pool, which is usually invested so that it will grow. It is also used to cover accidents, and the rest is used as expenses such as infrastructure and salaries.

You are sharing risks with others. This allows you to avoid having your entire financial future ruined by one accident or illness. So, there are rewards and risks for each party. You're taking a risk to trust the insurance company to pay for any liability that you have, and they're taking a risk that you will have an accident and they'll need to pay. Both of you get some form of reward, you - if something does happen, and just having the peace of mind, and them - by earning money on your premiums.

Tips: There are some tips that you can use to move into higher deductibles and thus lower your monthly premiums, if you really cannot afford the higher premium now:

Do You Want A High Or Low Deductible? - The Bottom Line

We hope this article on do you want a high or low deductible? has been informative. Weighing the pros and cons of lower insurance deductibles is something almost everyone has to do when choosing an insurance product. Understand what deductibles mean, and be honest with yourself about your ability to pay the deductible and the premium. Your budget matters a great deal so that you can work it all out.