If you’ve ever shopped for an insurance policy—whether it be for auto, home, or business insurance—then you probably know just how complicated some of the terminology can be. From premiums and primaries to deductibles and declarations, things can often get confusing.
When shopping for any type of insurance, it’s important to understand the differences between a premium and a deductible—as well as the many ways your insurance deductible can impact your policy premium. Read on to learn more about insurance premiums and deductibles.
What is an Insurance Premium?
An insurance premium refers to the total amount of money your insurance carrier is going to charge you for your policy’s quoted coverage. This is usually not a monthly payment, but rather a total amount for the full length of your policy. For example, you might be quoted $100 per month for an auto insurance policy that lasts six months. This means your total policy premium would be $600.
The length of your policy can obviously affect your premium, since the longer you’re covered, the higher your premium is going to be. You’ll pay a higher premium for a year of car insurance coverage than for six months, even if your monthly payment works out to be the same. This is why it’s so important to look not just at the monthly payment you’re being quoted from an insurance company, but the total policy premium as well.
What is an Insurance Deductible?
An insurance deductible, on the other hand, can be a little more complicated. Generally speaking, a deductible is the total amount that a policy holder will be required to pay out-of-pocket for a covered loss before the insurance coverage will kick in and pay for the remainder. For example, if you have a home insurance policy with a $500 deductible and you end up with $700 worth of damage due to a covered water leak, this means you’ll pay $500 of your own money, and your insurance company will cover the remaining $200 in repair costs.
Deductibles can vary greatly from one policy to the next, and specific policies on deductibles can vary as well. With some types of insurance, your deductible is an annual amount; for others, it’s a per-incident amount. Furthermore, you might have separate deductibles for different types of coverage. For example, under an auto insurance policy, your collision deductible may be a different amount than your comprehensive deductible. This means you’ll pay different out-of-pocket amounts if you need to file a collision claim (such as after you get into an accident) versus what you’ll pay out-of-pocket for a comprehensive claim (such as a cracked windshield).
The nice thing about deductibles is that you have a say in how high or low of a deductible you’re comfortable with paying. Most insurance companies allow you to choose your own deductible within a reasonable range. You may even be able to get a policy without a deductible, meaning you’ll pay nothing out-of-pocket if you need to file a claim.
How Can a Deductible Impact Your Premium?
When deciding on a deductible for your insurance policy, there are a few things you should keep in mind. For starters, the higher the deductible you choose, the lower your policy premium will be (and thus, the lower your monthly payment will be). This may seem appealing, but if you end up needing to file a claim, be aware that you’ll be responsible for paying that high deductible before your coverage will kick in. With this in mind, it’s important to be sure that you’re fully comfortable with the amount of your deductible when choosing a policy.
On the flip side, a lower deductible will generally result in you having a higher premium and monthly payment. However, this also means you’ll have less (or nothing) to pay out-of-pocket in the event that you need to file a claim. Some people prefer this option for the added financial peace of mind.
When shopping for an insurance policy, it’s a good idea to “play around” with different deductibles on the same policy to see exactly how much your premium and monthly payment will be affected by increasing or decreasing your deductible in various increments. From there, you can determine the amounts that you’re comfortable with.
In summary, a policy premium refers to your total quoted payment amount for the length of your insurance policy, whereas a deductible is the amount you’ll agree to pay out-of-pocket before your coverage kicks in. By being aware of the differences between these commonly confused insurance terms, you can make better-informed decisions for your coverage. For more help with your auto, home, or business insurance needs, contact Schertz Insurance Agency today.