Key ideas

1. You pay the deductible, then insurance pays. On Sam's $3,200 repair with a $1,000 deductible, he pays $1,000 and the insurer pays $3,200 − $1,000 = $2,200.
2. A higher deductible means a lower premium. You take on more of each claim, so the insurer charges you less. Ask for quotes at two or three deductible levels.
3. Only pick a deductible you can pay. If a $1,000 bill would go on a credit card at 20% or more, a lower deductible may be worth its price.

Vocabulary

Insurance deductible

The amount you pay yourself on a covered loss or medical bill before your insurance starts to pay.

Emergency fund

Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.

Liability coverage

Insurance that pays for injuries or damage you cause to other people, up to your policy's limits.

Work it out

Sam has $2,500 in savings. His insurer quotes $1,320 a year with a $500 collision deductible and $1,140 with a $1,000 deductible. Then he backs into a pole.

1. Repair bill
2. Sam's deductible
3. Insurer pays
4. $500 deductible premium
5. $1,000 deductible premium
6. Yearly savings
7. Extra deductible risk

Check yourself

1. Your renters policy has a $500 deductible. A covered theft costs $1,800. How much does insurance pay?

   • A. $500
   • B. $1,300
   • C. $1,800
   • D. $2,300

2. What usually happens to your premium when you raise your deductible?

   • A. It goes up
   • B. It stays the same
   • C. It goes down

3. A $1,000 deductible saves $250 a year over a $500 one. What is the break-even?

   • A. 1 year
   • B. 2 years
   • C. 4 years
   • D. 5 years

Your turn

Pull up the declarations page for your car or renters policy and write down each deductible. Then ask your insurer for the premium at the next deductible up, and work out your break-even years.