Deductible vs Premium
An insurance policy is a contract that is signed between two parties; the insurer and insured in which the insured will pay a fee to the insurer who will in return promise to pay for any loss covered in the insurance policy. Insurance policies are taken out by businesses and individuals to help guard against large financial losses. In addition, an insurance policy can offer the policy holder as well as any parties to which the policy holder is accountable to (such as customers, employees, third parties) a financial backing to claim for any damages. The terms premium and deductible are insurance terminology, and it is important to clearly understand the differences between insurance premium and insurance deductible to fully comprehend what your insurance policy offers. The article offers a clear explanation of each of these terms and highlights the differences between premium and deductible.
What is Premium?
A premium is a payment that is made by the insured (person who is purchasing the insurance policy) to the insurer (the company offering insurance coverage). The premium will be paid by the insured every month and is paid to keep the insurance policy active and to maintain insurance coverage. A premium is considered as the monthly cost of keeping your insurance policy. A person can decide to pay a higher premium or lower premium, but this will depend on the amount of the deductible that they wish to pay. For example, you take out insurance cover for your vehicle worth of $3000 per year and are charged a monthly premium of $100 per month. This $100 that you pay per month is the cost that you need to incur in order to maintain the insurance cover for your car.
What is Deductible?
The deductible is the amount that the insured will have to pay by themselves before the insurance company will pay out the claim. For example, you take out insurance cover on your car with a deductible of $300. In the event that your car faces an accident you will be required to pay the initial $300 and the insurance company will cover the remaining cost. The amount that you decide to pay as the deductible will depend on how much you can afford to pay upfront. The deductible amount will also determine the amount that is paid as a premium.
What is the difference between Premium and Deductible?
Premiums and deductibles are terms that are closely related to one another in that they both are insurance terminology. The premium is the amount that the buyer of the insurance cover pays the insurance company to maintain their insurance coverage. A deductible, on the other hand, is the amount that the individual will have to pay upfront before the insurance company will start to pay out the claim. The amount that you will have to pay as premium will depend on the amount paid as a deductible. If you choose to pay a higher deductible you will have to pay a lower premium, and if you choose to pay a lower deductible the cost of your premium will be higher. Unless you are very much accident-prone or have a higher probability of facing losses (particular losses covered by your insurance), it is better to pick a higher deductible to reduce the cost of the policy (the premium). However, you must make sure that the deductible you choose is within your financial ability and does not cause large financial difficulties.
Summary:
Premium vs Deductible
• An insurance policy is a contract that is signed between two parties; the insurer and insured in which the insured will pay a fee to the insurer who will in return promise to pay for any loss covered in the insurance policy.
• Premiums and deductibles are terms that are closely related to one another in that they both are insurance terminology.
• The premium is the fee paid by the insured to the insurance company every month to keep the insurance policy active and to maintain insurance coverage. An insurance premium is considered as the monthly cost of keeping your insurance policy.
• The deductible is the amount that the insured will have to pay by themselves before the insurance company will pay out the claim.
• The amount that you will have to pay as insurance premium will depend on the amount paid as an insurance deductible. If you choose to pay a higher deductible you will have to pay a lower premium, and if you choose to pay a lower deductible the cost of your premium will be higher.
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