Having a higher deductible lowers insurance premiums because it shifts more financial responsibility to the policyholder in case of a claim. When the deductible is higher, the insured agrees to pay more out of pocket before the insurance coverage begins, which reduces the insurer's risk and potential payouts. As a result, insurance companies reward this by charging lower monthly or annual premiums. Additionally, higher deductibles discourage frequent small claims, which can help keep overall insurance costs down for everyone.
How Higher Deductibles Lower Premiums
- By agreeing to pay a larger amount upfront during a claim, the insured reduces the insurer's expected expense.
- Insurers lower premiums because the probability and frequency of claims are reduced when deductibles are higher.
- Lower claim frequency and severity mean lower costs for the insurer, reflected in premium savings for the policyholder.
Considerations
- While premiums are lower with higher deductibles, the policyholder assumes more financial risk.
- If a claim occurs, the insured must cover a larger portion, so affordability of the deductible is essential.
- The overall benefit depends on how often claims are filed; for low-claim individuals, high deductibles can lead to significant premium savings over time.
