Low Premium vs. High Deductible

by Dawn Aldridge
You can save money on insurance by understanding how a higher deductible will affect you.

A lower monthly insurance premium and a higher insurance deductible tend to go hand in hand. In general, an insurance plan with a higher deductible will have a lower premium because the consumer is taking on more risk and more financial responsibility in case a claim has to be filed.

Risk and Reward

The easiest way to reduce your premium without cutting your coverage is to raise your deductible. Doubling out-of-pocket expense for a claim from $250 to $500, or even quadrupling it to $1,000, means your premium will fall because you're assuming more risk. If you have at least $1,000 in an emergency fund, it might make sense to risk paying $1,000 after an accident to save money on monthly premiums. You can add the extra money to the emergency fund with the extra bonus of improving your driving record, because safe driving is even more in your interest with a higher deductible.

Healthy Deductibles

While car insurance deductibles apply to each claim you make, a health insurance deductible applies to all claims in a calendar year. Under the Affordable Care Act, several preventative care items will be covered without a deductible. This means you can receive annual checkups, screenings and immunizations if you're healthy without worrying about your high deductible. When a health plan qualifies as a high-deductible plan for IRS purposes, tax free money can be set aside in a health savings account to offset a high deductible.

High Anxiety

A high deductible comes with risks of its own. While many services are fully covered when you're healthy, medical expenses for illness and injuries aren't. That means you're responsible for all charges until you reach the amount of your deductible. Once your deductible has been paid, your insurer will begin paying. The insurance company's portion will depend on the type of plan you have. For example, your could have a plan where the insurance company will pay for 80 percent of expenses after the deductible, leaving you to pay the rest.

Not for Everyone

High deductibles aren't for everyone. Those who expect to have high medical costs during the year benefit more from paying higher monthly premiums and a lower deductible. With a low deductible the insurance company will begin paying medical expenses sooner, meaning less money out of pocket for you later. This idea could also apply to drivers who spend a significant time on the road because they're more at risk of being in an accident. You might want to pay the higher premium to avoid paying a lot of money out of pocket later. Also, if you're involved in a hit-and-run accident that's not your fault, you'll be stuck paying the deductible unless the other driver is found.

About the Author

Dawn Aldridge has worked in accounting and business since 2004. Her diverse experience includes public, small business and government accounting, as well as logistics and inventory management. She holds an MBA from the University of Illinois at Springfield.

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