Scenario: I pay X amount of dollars per month for car insurance. I have all 4 tires stolen from my vehicle overnight. I submit a claim with my insurance company to repair any damages. I now pay a **hefty** X amount of dollars for the event that has occurred.
In: Other
In exchange for agreeing to be barred from submitting petty claims for ‘one broken tail-light lens, no other damage’ and similar, you get a slightly lower premium….
The lower the value of claim you want them to cover, the more you have to pay.
A few reasons:
1) You don’t get a friend to steal your tires since the new tires cost you something.
2) More incentive to avoid claims since they cost you $.
3) Avoids the hassle of dealing with small claims
If you have all 4 tires stolen and let’s say each tire is 200$ and you have a comprehensive deductible of $500, you’re saving $300 by filing through insurance..
it’s to incentivize you to pay out of pocket for less expensive stuff. if someone does $200 of damage to your car and your deductible is $500, there’s no point in getting the insurance company involved. prevents them from having to deal with as many small claims, bigger deductibles also lower your premium a bit, so they’ll cover less stuff but it costs you less money.
Some good answers here, but I don’t know that many are ELI**5**
Let’s say you’re worried something bad might happen. Insurance is a way of protecting yourself against that.
The way it works is the insurance offers to pay for everything **after** you’ve paid a certain amount.
Imagine you wanted to buy a bike. It costs $150. You save and save but can’t quite get there. Your parents offer “You pay $50 and we’ll pay the rest”.
That’s what’s happening here. You pay the deductible and the insurance pays for the rest.
Insurance companies aren’t just giving it away though, you have to pay them. The less you pay, the more they’ll want you to be responsible for should something bad happen.
The deductible is the amount of risk you’ve accepted to be responsible for when filing a claim through your own insurance. It’s to prevent people from repeatedly filing false claims to receive a payout and get ahead financially. Plus it reduces the amount of premium you pay the higher the deductible amount is.
Worth noting you choose what your car insurance deductible is. Usually you pay more for the insurance for a lower deductible, so it more or less evens out.
For car insurance you sometimes even get it back depending on the issue/accident. We had a drunk total our vehicle, no license, insurance, and it wasn’t even his vehicle which was also totaled. We had uninsured motorist and a $500 deductible. We got about $10k (the current value) for our vehicle and the deductible refunded.
Picture that you get a Playstation for your birthday. Your mom says “Give me $2 from your allowance a week and if your Playstation dies I’ll buy you a new one minus $50. OR you can give me $5 from your allowance a week and if your Playstation dies I’ll buy you a new one minus $10.
You don’t get much of an allowance so $50 would be difficult but you go that route and you are extra careful to not rage quit and smash your system. If you go with the $10 deductible you’re going to be less careful with it and more likely to tell her you need a new one if your friend scratches their name into the top of it.
Usually insurance plans do vary your yearly cost depending on what your deductible is. You can have a lower one, but it’ll cost you more in your premium. That’s the balance, you choose what “hefty” means based on your premium.
As an insurance underwriter (aircraft and aviation businesses) I require deductibles so the insured feels the pain of a claim and so is more likely to try to prevent it. Your premium is a sunk cost so there could be a lack of caution to prevent damage to your aircraft since you’ve already paid for it (premium). Unlike a lot of other lines of insurance the deductible generally doesn’t do much to the actual premium since aircraft losses are often 5 digit for owner-flown stuff and 6 digit for everything else. EVERYTHING in aviation costs an arm and a leg….and a rib….sometimes a kidney…couple ounces of blood…you get the idea.
You’re basically paying for the labour required to process your claim, unless you elect to increase your monthly premium to reduce the claim excess
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