Behind every large claim for any property, liability, or medical accident insurance, there is a lot of paperwork. This paperwork involves different coverages, benefits, and signs of contracts.
For people who understand these concepts, signing the paper always comes easily. However, other people may struggle with clearly understanding these insurance terms.
For that reason, we have created this guide to cover the financial concepts of the premium and deductible in detail. From there, you can make what seems like the most informed decision possible.
Without further ado, let’s get started!
What Is an Insurance Premium?
An insurance premium is a monthly or yearly payment to an insurance company that keeps your policy active. Premiums are usually paid monthly but can be paid in full for the year ahead.
Many factors determine the amount you pay. These include the type of insurance you have, your age, gender, health, and coverage.
What Is an Insurance Deductible?
An insurance deductible is the sum of money you must fork over before your insurance provider begins to pay for a covered claim. For example, if you have a $1,000 deductible and make a claim for $5,000 worth of damage, your insurance company will only pay $4,000. You would be responsible for paying the first $1,000.
Some insurance policies have a per-incident deductible, which means you would have to pay your deductible for each separate claim you make. Other policies have a yearly deductible, meaning you would only have to pay your deductible once during the year.
The Differences Between an Insurance Premium vs Deductible
When it comes to insurance, there are a lot of different terms that are used interchangeably but have very different meanings. Two of these terms are insurance premium and deductible. While they both have to do with how much money you will have to pay for your insurance, they are very different.
The Amount You Pay
Your premium is the amount you pay monthly for your insurance. Your deductible is the amount of money you pay for your insurance before your insurance starts to pay for your medical bills.
Frequency of Payment
Insurance premiums are typically paid monthly, while deductibles are usually paid when you make a claim. Additionally, deductibles generally are much higher than premiums, meaning you’ll need to fork over more money upfront if you have a deductible. However, this also means that your insurance will cover more costs if you need to make a claim.
Coverage
There are a lot of different factors that affect your insurance premium and deductible. The biggest factor is the coverage you choose. The more coverage you have, the higher your premium will be.
Meanwhile, a higher deductible means you will have to pay more out-of-pocket, but you will also have a lower premium. Check out this flood insurance cost calculator if you want to know how much you’ll be paid after a flood.
Get Insured!
You’re not alone if you’re confused about the differences between an insurance premium vs deductible. Insurance premiums are the amount you pay for your insurance policy. At the same time, your deductible is the amount you pay out-of-pocket for covered services.
The higher your premium, the lower your deductible will be. Understanding the differences between these two payments is essential when choosing a health insurance plan.
If you’re unsure which is right for you, talk to your insurance agent and get some quotes to compare.
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