The document explains the concepts of premiums and deductibles in insurance, highlighting that a deductible is the amount an insured person must pay before insurance coverage kicks in, while a premium is the scheduled payment for the insurance policy. It emphasizes the inverse relationship between premiums and deductibles, advising against simply choosing a lower premium for short-term savings without considering personal financial preparedness for potential out-of-pocket costs. Ultimately, it argues that higher deductibles are acceptable for those with sufficient emergency funds, as deductibles help prevent small claims to save insurance companies money.

1. PREMIUMS &
DEDUCTIBLES
A M I G O M G A - I N S U R A N C E . N E T
W H A T I S A D E D U C T I B L E ?
Are you thinking of changing your deductible to save you short-term money?
You may want to think again. Let's walk through how deductibles work.
At its most basic, a deductible is the
threshold amount an insured person has to
pay for a service (accident repairs, an
emergency room visit, etc.) before an
insurance policy will step in to cover the
rest. A premium, conversely, is the amount
of money you pay into your insurance on a
schedule (yearly, quarterly, etc.).
P R E M I U M S & D E D U C T I B L E S A R E
I N V E R S E L Y P R O P O R T I O N A L
W H Y A R E T H E R E
D E D U C T I B L E S A T A L L ?
D O N ' T C U T Y O U R P R E M I U M
F O R S H O R T T E R M S A V I N G S
H I G H D E D U C T I B L E S A R E O K A Y I F
Y O U R E M E R G E N C Y F U N D I S
W E L L - S T O C K E D
That is, the higher your premium is, the
lower your deductible is, and vice
versa. A plan with low deductibles
offers higher coverage, and a plan with
high deductibles costs less monthly
but demands more out-of-pocket
money in the event of an accident.
Picking a premium/deductible package based
solely on saving money in the present may not
be the wisest solution. You may feel good
about spending so little money on a monthly
basis to “be covered,” but in the event of an
accident, may not have the large deductible
amount sitting around to cover costs, so the
insurance policy proves completely useless if
you're in peril.
Deductibles exist to deter small claims
that an individual could likely pay totally
on their own in order to save the
insurance company money on petty
costs.
If you can easily afford to pay a large
deductible in the event of a crisis, then
a low premium may be just fine. Without
any accidents, the math may look
“better” with a low premium, but
accidents are just that -- unforeseen,
unplanned emergencies.