Why do lower insurance premiums go with higher deductibles?
Asked by: Prof. Hardy Lemke Sr. | Last update: October 22, 2025Score: 4.6/5 (19 votes)
What is the relationship between insurance premiums and deductibles?
You may be able to save money on premiums by choosing higher deductibles. In general, the higher your deductible, the lower your premium will be. For example, if you choose a $1,000 deductible on your auto policy, you will likely pay less in auto insurance premiums than you would for a policy with a $250 deductible.
Is high deductible low premium better?
HDHPs have higher out-of-pocket costs than LDHPs. So, this type of plan is best for healthy people who expect little to no healthcare expenses. If this outlines your scenario, the HDHP's lower premium will likely save you more money than you would spend on medical care.
What happens to your insurance premium if you have a high deductible?
A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (also called your deductible).
What happens to insurance premiums when the deductible increases?
With a higher deductible you'll pay more out of pocket, but your car insurance rate will be lower. Voice Over: With a lower deductible your rate will be higher, but you'll pay less out of pocket.
The Ultimate Insurance Hacks Save Big While Staying fully Covered
Why lower insurance premiums go with higher deductibles?
The size of your monthly premium impacts your deductible—typically, the lower the premium, the higher the deductible. Why does having a higher deductible lower your insurance premiums? Because you'd be taking on more costs if you actually need care, rather than paying more each month toward potential care.
Is it better to have a $500 deductible or $1000?
Remember that filing small claims may affect how much you have to pay for insurance later. Switching from a $500 deductible to a $1,000 deductible can save as much as 20 percent on the cost of your insurance premium payments.
What is the downside of a high deductible?
The primary disadvantages of a high-deductible health plan include the high out-of-pocket costs and the potential reluctance to seek medical care due to upfront expenses. While HDHPs have lower premiums, individuals may face financial strain if they need medical services before meeting the deductible.
How much will my premium go down if I increase my deductible?
By and large, increasing the dollar deductible from $200 to $500 could potentially reduce collision and comprehensive coverage premium costs by 15% to 30%, whereas increasing the deductible to $1,000 may save 40% or more.
What is considered a good deductible for health insurance?
A plan that has a deductible of at least $1,400 (for individuals) or $2,800 (for a family) is considered a high-deductible plan. If your insurance plan has a low deductible, this means you may reach the threshold earlier and get cost-sharing benefits sooner.
Is $2500 a high deductible?
In 2023, health insurance plans with deductibles over $1,500 for an individual and $3,000 for a family are considered high-deductible plans.
Why does having a higher deductible lower your insurance premiums in Ramsey?
The higher your deductible, the less you'll pay in premiums for the insurance itself. That's because you're taking on more of the financial responsibility if you need to make a claim. And the insurance company is not paying out as much, which means they can afford to charge you less in monthly premiums.
What is considered a high-deductible health plan in 2024?
For calendar year 2024, a “high deductible health plan” is defined under § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not ...
Does your monthly premium count toward your deductible?
Premiums usually do not count towards your deductible or your maximum out-of-pocket limit. It is also important to note that you may have separate and unique deductibles or maximum out-of-pocket limits for individuals versus the whole family together, or for in-network versus out-of-network services.
What is a good 6 month premium car insurance?
The average 6-month car insurance premium is $947 per year, but some insurers offer lower rates; Nationwide offers 6-month car insurance at $774.
Who really needs life insurance?
People with young children are strongly recommended to have life insurance to protect their family. Homeowners should take out life insurance so that the death benefit can pay off the mortgage. Business owners and those who want to pass down a financial legacy are also advised to purchase life insurance.
Why would someone want a high-deductible but a lower premium?
High-deductible health plans usually carry lower premiums but require more out-of-pocket spending before insurance starts paying for care. Meanwhile, health insurance plans with lower deductibles offer more predictable costs and often more generous coverage, but they usually come with higher premiums.
Can the color of your car affect your insurance premium?
Does car color affect insurance rates? The color of your car doesn't affect your insurance rate. Instead, your insurance company uses other information, like your car's age, location, usage, and your driving record, to help determine insurance rates.
Is a $2000 deductible good for car insurance?
WalletHub notes that you can save about 6 percent by choosing a $2000 deductible instead of a $1000 deductible, which may or may not make sense depending on the price of your policy. As Bankrate notes, you will not have to pay your deductible for a claim if another driver caused the accident.
Why does having a higher deductible lower your insurance premiums?
If you increase your deductible, you'll pay less on a monthly basis for coverage because you will end up paying more out of pocket if you file a claim.
Why is it not a great idea to have a high deductible?
Large medical expenses: Since HDHPs generally only cover preventive care, an accident or emergency could result in very high out-of-pocket costs. Future health risks: Because of the costs, you may refrain from visiting a physician, getting treatments, or purchasing prescriptions when they're not covered by your HDHP.
What is the difference between a PPO and a HMO?
HMOs (health maintenance organizations) are typically cheaper than PPOs, but they tend to have smaller networks. You need to see your primary care physician before getting a referral to a specialist. PPOs (preferred provider organizations) are usually more expensive.
What is a good deductible for comprehensive?
How much comprehensive deductible do I need? Comprehensive deductibles can range from $100 to $2,000 in most states. The right comprehensive deductible amount for you depends on your preferences and needs for out-of-pocket costs and your overall insurance rate.
Is a credit score check required to get auto insurance?
Most insurers use credit checks to create a credit-based insurance score to help set your rate. Some insurers provide auto insurance with no credit check, which might seem appealing if you have a poor credit history.
Do you get your deductible back if you're not at fault?
Yes, if you have to pay your deductible and you were not at fault, you may be able to get it back from the at-fault driver's insurance company. This is called subrogation. Your insurance company will pursue the at-fault driver's insurance company to recover the money paid for the damages, including your deductible.