Insurance deductibles are the out-of-pocket amount you agree to pay when you file a claim before the insurer covers the remainder. A higher deductible means you accept more loss exposure at the time of a claim, and insurers typically reward that by charging a lower premium (the periodic payment for coverage). For example, if you raise a collision deductible from $500 to $1,000, the insurer’s expected payout per small claim falls, which reduces the insurer’s risk and lowers your premium. Choosing the deductible is a trade-off: if you rarely make claims and have a solid emergency fund, a higher deductible can save money through lower premiums; if you can’t comfortably cover the deductible after a loss, a lower deductible is safer despite higher premiums.

When picking a deductible, do the math: estimate how much you would pay in premiums over a multi-year horizon under different deductible choices and compare that to the cost of self-insuring the difference (keeping the premium savings invested or available). Also account for the probability and size of claims based on driving patterns or home location: higher claim risk favors lower deductibles. For auto policies, deductibles typically apply to collision and comprehensive claims but not to liability claims (where you pay nothing out of pocket for the other party’s damages if covered). Remember deductibles are part of the overall risk-management plan — pair deductible choices with emergency savings and consider bundling discounts or multi-year premium changes when evaluating total cost.