Deductible

A deductible is the amount you pay yourself before insurance pays anything. With a 300 deductible on a car policy and a 1,000 repair bill, you pay 300 and the insurer pays 700.

It exists for two reasons: to stop insurers being flooded with tiny claims, and to keep policyholders careful. If the insurer covered every cent, there would be less reason to avoid the loss in the first place.

Deductibles and premiums move in opposite directions. Raise the deductible and the premium falls; lower it and the premium rises. So anyone who can absorb a small loss can sensibly take a higher deductible and pay less each month.

The test is whether paying that amount suddenly would disrupt your life. With a solid emergency fund, a higher deductible cuts your monthly cost; without one, it is safer to pay more premium and keep the deductible low. Some policies, such as health cover, set a coinsurance rate instead of a fixed sum — you pay a set percentage of each bill rather than a flat amount.