Auto and home insurance premiums can be a significant expense for most people, especially for those who are on a tight budget. However, there are ways to reduce the cost of these insurance premiums, and one of the most effective ways is by opting for a higher deductible. In this blog post, we will discuss why higher deductibles help lower auto and home insurance premiums.
What is a Deductible?
A deductible is the amount you have to pay out of your own pocket before your insurance coverage kicks in. In other words, it's the amount you agree to pay before the insurance company starts covering the expenses. For example, if you have a $500 deductible and your car is damaged in an accident, you would have to pay the first $500 in repairs before your insurance company starts covering the rest of the costs.
Why Higher Deductibles Help Lower Premiums?
The reason why higher deductibles help lower insurance premiums is that you are taking on more of the financial risk yourself. By agreeing to pay a higher deductible, you are reducing the insurance company's risk, and as a result, they can lower your premium. The logic behind this is simple, if you are willing to pay more out of pocket in the event of a claim, the insurance company is less likely to have to pay out as much, and this reduces their risk.
How High Should Your Deductible Be?
The higher your deductible, the lower your premium will be. However, it's essential to choose a deductible that you can afford to pay in the event of a claim. If you choose a deductible that is too high, you may not be able to pay it in the event of a claim, and this can result in financial difficulties. It's essential to choose a deductible that balances your premium savings with your ability to pay in the event of a claim.
In conclusion, higher deductibles can help lower your auto and home insurance premiums, but it's essential to choose a deductible that you can afford to pay in the event of a claim. By taking on more of the financial risk yourself, you can reduce the insurance company's risk, and as a result, lower your premium.