Which statement about deductibles and premiums is accurate?

Which statement about deductibles and premiums is accurate?

• A. Deductible has no effect on premium.
• B. Higher deductibles typically lower premium.
• C. Higher deductibles increase claim payout.
• D. Deductible cancels coverage after a claim.

Answer: (B)

Understanding how deductibles influence the cost of coverage and out-of-pocket costs is key. The deductible is what you pay before the insurer covers a claim, while the premium is the price you pay for having the coverage. When you choose a higher deductible, you’re taking on more of the risk yourself, so the insurer’s expected payout decreases. To reflect that lower risk, the insurer typically charges a lower premium. In a claim, the insurer pays the loss amount minus the deductible (subject to policy limits), so increasing the deductible actually reduces the insurer’s payout to you and increases your own out-of-pocket amount. The policy generally remains in force unless other terms or conditions trigger a cancellation.

Understanding how deductibles influence the cost of coverage and out-of-pocket costs is key. The deductible is what you pay before the insurer covers a claim, while the premium is the price you pay for having the coverage. When you choose a higher deductible, you’re taking on more of the risk yourself, so the insurer’s expected payout decreases. To reflect that lower risk, the insurer typically charges a lower premium. In a claim, the insurer pays the loss amount minus the deductible (subject to policy limits), so increasing the deductible actually reduces the insurer’s payout to you and increases your own out-of-pocket amount. The policy generally remains in force unless other terms or conditions trigger a cancellation.