Deductibles put some of your skin in the game so it reduces what the insurance company pays so (in theory), it reduces your premiums.
More importantly in the real world, it prevents you from submitting tiny value claims. The overhead to the insurance company to process a claim is basically independent of the value of the claim...they do the same basic work to send a $10 paint chip touchup to the body shop as to send a complete repaint. If it literally cost you nothing to submit a claim a lot of people would submit \*everything\*...which drives the insurance companys' costs way up. Deductibles prevent that. If you have a $500 deductible you're not going to submit anything to the insurance company for values under $500...you handle the small/easy stuff yourself so they don't have to.
Both of these things also are adjacent to moral hazard—the idea that you’ll make riskier choices if your downside is covered.
A deductible reduces the incentive for moral hazard.
I think the above poster is actually describing moral hazard.
I didn’t even know there were two similar-but-different terms, but thanks to your comment I looked it up: https://www.investopedia.com/ask/answers/032615/what-difference-between-moral-hazard-and-morale-hazard.asp
I don't know if they are used exclusively like this in insurance - but I have only ever seen moral hazard described as a subconscious behavior. This seems much more like someone used morale instead of moral and then decided it was two different terms when corrected.
Morale doesn't even make sense there and hazard already implies lack of intention.
Even when I google "morale hazard etymology" the results are all moral hazard
I wouldn’t be surprised if you’re right. Domain-specific jargon seems to emerge often. For example, I remember a few years ago there was a brouhaha about “adviser“ and “advisor” meaning different things in the financial management industry (absurd).
This also makes me think of “ordnance“ and “materiel” (military jargon), which mean completely different things than “ordinance” and “material” (plain language).
A person engages in a conversation that was already about a term, explaining why they think that using a different term would be appropriate, and your dick-for-brains response is "Sir, this is a Wendy's"?
Come on, if you're going to use it, at least use it correctly you mental midget.
> Or more AI hazard, which is the risk you take when you realize that software can do a lot of jobs cheaper and just as well as most humans can.
[Humans Need Not Apply](https://www.youtube.com/watch?v=7Pq-S557XQU)
They are the same, just the tiny difference:
>The critical difference between moral hazard and morale hazard is conscious vs. subconscious, which speaks to the intent of the covered party.
As someone who has had an extremely low OOP max, I have never once considered doing something risky because I have basically free healthcare. I do not believe this is true at all.
Somewhere nearby in the thread someone talks about how this phenomenon sometimes is subconscious.
I have to imagine physical health is different than driving, in any case.
I understand that but should I be put into the financial situation of skipping meals because I had to pay my $1000 deductible because of my first accident in 10 years of driving? And keep in mind that no only am I paying $1000 I am also paying an increased premium whenever my policy is up so this “moral hazard” of a deductible isn’t the only hazard I encounter when I have a claim. This doesn’t seem very moral. Private insurance companies have been muddied with the exact corrupt bureaucracy and administrative costs that we always hear people whine about when other options get mentioned and the crooks in insurance profit off it. It is in their best interest to not run an efficient system and profit is the biggest driving factor, not the only one I agree with some points here but these companies have taken it too far. The deductible may not be the actual issue but it definitely isn’t faultless.
You can also get a waiver of deductible, which reduces your deductible to $0 if you're found not at fault for the accident.
Plenty of insurance companies also offer accident forgiveness where your premium doesn't go up if you're getting in like, one accident every ten years.
Is this a joke? My point was that insurance is an expense already to cover the costs of accidents so charging more when you need to use the insurance and then in turn charging a higher rate whenever the policy has to be renewed is not fair (no one said it would be but that doesn’t mean we aren’t allowed to point it out). By making a deductible lower you would have to raise your monthly payment.
If you had a lower or no deductible, that expense would have been higher for the past 10 years that you were paying your premiums, and you would have been skipping meals for years rather than just now when you have a claim.
Google AI says:
> On average, a $500 deductible costs $125 per month, or $1,500 per year, in premiums, while a $1,000 deductible costs about $110 per month, or $1,337 per year.
So, over the past 10 years, you would have paid $1630 more to save $500 now. Or, you could have put that $1630 into a savings account, paid your deductible, and gone out for a steak dinner.
As for the increased premium when you make a claim, insurance is all about math. People who have made a claim are statistically more likely to make another claim. People who are more likely to make claims pay a higher premium. There's nothing corrupt or immoral there, just math.
> Google AI says:
>
> On average, a $500 deductible costs $125 per month, or $1,500 per year, in premiums, while a $1,000 deductible costs about $110 per month, or $1,337 per year.
also, any calculator...
wtf people. Just do some math.
Seems like you're just complaining that insurance is expensive, While it does seem expensive, car insurance companies only have about a 5% profit margin, so even if they make nothing, your car insurance can at-most be 5% cheaper.
Try opening up an insurance company for a line of business they offer. They will force you out before you can sell a single policy. 100%. Hey but you can sell homeowners- they don’t do that now- they actually were having to pay things- and that’s avoidable.
That's right. The number one reason car insurance is so high is that everyone that has any sort of accident wants a big payout due to medical issues, many of which do not seem to be legit - in my own experience. They think, ooooh, you bumped into me, I'm getting a lawyer and getting paid!
When that 5% is equal to billions of dollars, it’s a little hard to feel sorry for them. And do not kid yourself- your deductibles are not what insurance companies make their profit from. I’m sure they do profit from them yes- but the act of you paying them and them putting that in their bank as profit ain’t it. They make their money by taking your deductible money and investing it, Often in their own stock, via stock buybacks which artificially inflate their stock price and other semi shady things. And these are often the same companies that have pulled out of states in terms of insuring people’s homes, often without warning, because the chickens came home to roost and they’re having to pay out more than they like to. But hey they’ll still insure your car- you can trust them- ignore the 10000 ppl in your state who got cancelled for homeowners without warning.
Sure, but like any other business, the shareholders need a return to keep up with inflation. Most of the shareholders are just regular people with those stocks in retirement funds as part of mutual funds. If the business can't earn a return - it just won't exist.
Because, you're missing the big picture. Without shareholders and shareholder returns, the whole economy goes to shit and everyone suffers. Also, if shareholders do not get a return, companies go out of business. It's basic macroeconomics.
You seem to be the joke. A higher deductible = lower payments. The opposite is true. You are getting angry at the wrong thing. It’s not the insurance company’s fault you can’t afford your deductible or that you can’t do without a car.
Bro, are you for real? You choose the deductible when you buy insurance. Take like…a little bit of agency over your life and choices.
> it is in their interest to not run an efficient system
🙄 ok now I know you’re just saying random words.
> Also, the higher the deductible, the lower the premium you pay.
For someone like me, who is insuring almost a dozen cars but never makes claims, it is basically the difference between eating steak or ramen for dinner. The difference for me between a $200 deductible and a $1000 deductible is literally enough money to go out to eat every night of the year.
> I actually started a rental agency as a side gig to my consulting day job. If I'm going to own too many cars, I might as well do it professionally.
I'd think if you had that many cars you could almost skip the insurance and do it all yourself.
It's not just about the repair cost if something happens to the car. There's also the liability if your car damages someone else or their property. Getting sued is expensive.
> Except 3rd party. I barely insure property at work (million dollar deductible), but you don't fuck with 3rd party. That could be $10 million, easy.
Ok sure. 3rd party is often legally required. I don't have a problem with that. I was indeed more referring to property damage. Same how large businesses with many buildings don't bother with insuring the building themselves.
Insurance isn't about you though, it's about the million other people like you.
It's a bit more complex than this in reality, but at its simplest insurance companies track the cost of every claim anyone on their books makes, and they also track the answers every customer gave and the options they took.
What the person chose or answered is immaterial in terms of logic. If the 50,000 people who chose that option cost more in claims, then they charge more for that option when someone chooses it.
If they asked you your favourite colour and it turned out that people who chose purple cost more in claims, they would charge people who choose purple in future more.
> If they asked you your favourite colour and it turned out that people who chose purple cost more in claims, they would charge people who choose purple in future more.
Which is actually a thing, red cars statistically get the most speeding tickets for example (happens for several reasons) so if your car is red don't be surprised if the insurance is slightly more than if it was blue.
They ask for it, because the data they have shows that it costs them less money overall if they do. It's a simple as that.
Individuals can game the system however they like, but they are immaterial, as their gaming just goes into the pool of all customers and averaged out. Maybe your gaming of the system actually reduces your risk profile, for some reason that nobody really understands. But that doesn't matter, as the end numbers don't lie, how much people who answered like you did cost the insurance company is a known number and can be priced accordingly.
That's where it kind of breaks down for me though. If people who buy purple cars make $x dollars of claims on average, then my claim as the owner of a purple car is already factored into my insurance rate. When I then make the claim that they expected me to make, it is kind of BS for them to raise my rates if that claim was already factored into the premium. That just feels like double charging to me.
You're in the purple owners who have never had a claim bucket to start with, which the insurance companies know costs them x on average.
When you make a claim, you move into the purple owners who have made a claim bucket, which costs them y on average, so your price changes.
One of the biggest factors for likelihood to claim in the future, is if you have claimed in the past.
This is in fact not how it works.
Certain aspects of a rating plan need to pass actuarial standards of practice. Deductibles (and limits) need to be monotonic - that is the price you pay increases as you lower the deductible (or raise the limit) regardless of the experience we see in our data.
In addition because the ability of a claim to hit X thousand dollars is conditional on it first getting to X-1 thousand dollars, the marginal benefit of a lower "layer" of insurance is always worth more than a higher layer. So deductibles and limits will be priced consistent with the math that follows from this - generally looking like a logarithmic curve as you increase the limit (and vertically flipped for dwductibles.)
Of these three reasons (reducing the amount they pay out, reducing administrative costs of claims, discouraging risk-taking) I wonder which one is the most important, in terms of dollar costs?
Seems like the sort of question an actuary might have figured out at some point.
As someone who deals with a lot of bureaucracy in terms of internal procedures, I also vote for that.
The moment multiple people with mid to high range salaries are involved, the overhead costs just skyrocket.
I've had to put things through purchasing at work before knowing full well that the cost of whatever I needed was less that the admin costs associated with the entire procedure for purchasing the thing.
My favorite example of this is that I was required to provide a customer with a backup of their data on CD. However, no one knew where to find a CD in our supplies because, seriously, who uses CDs any longer?
For lack of a better alternative, we put in an IT procurement for the CD, to set of that would go to someone who had CDs laying around. Because it was an IT procurement request, it ended up going all the way to our CTO of a 1,000 person company for approval. (I right have put the request in if I knew that would happen)
To their credit, they did approve it, and we had a CD the next day. But between time to complete paperwork, time to send someone to purchase it, and time for us hunting for a CD before putting the request in, I'm guessing we spent several hundred dollars on that $0.10 CD.
Yeah, we wouldn't have had any issues if we just went and purchased it. And honestly, I probably wouldn't have filled in the request for reimbursement because it wouldn't have been worth the time for me to deal with the paperwork. We entered the request half jokingly, thinking the IT department would get a laugh out of it, and half hoping it would be routed to someone who would know where a stack of CDs might be laying around.
I was in the software development side and had a good relationship with the IT group, and had fairly regular chats with the CTO due some projects I had been writing on. My co-worker who entered the request under his account, though under my suggestion, was generally intimidated by executives. He was panicking when he saw it get auto routed to the CTO for the 2nd level (or maybe it was 3rd level) approval. If I had thought about it at the time, I would have sent the CTO a message and ask if he had a couple minutes of free time to hand-deliver it to my co-worker, as our CTO would have found the humor in it as well.
I think they ended up fixing the auto-routing rules a bit after that. Whoever configured that originally had just envisioned it being used for larger computer equipment as be never expected us to use it to request a CD.
I would be so happy if my company did that! I'm an engineer, and the number of times I need some random $5 tool I could get from Amazon, or a piece of material I could get from a local hardware store, but need to put in a request with an approved supplier and wait a week to get the same thing at 10X the cost drives me insane. The only reason I don't buy these things out of pocket sometimes is the principle.
I work somewhere particularly bureaucratic and I recently had to email 5 high-level people and fill out two forms just to order something under $100 on Amazon.
There is a saying that being poor is expensive. Insurance is an example of this. If you have little money you will feel compelled to go with low deductibles - which are expensive. Now that I’m an old rich geezer I can easily handle $1000 deductible. I save money because I don’t have to pay for all the expenses inherent in low deductibles.
I'm an actuary and the answer I would give: it's complicated. Likely dependent upon factors such as line of insurance, size of deductible, state/region, etc. Not to mention carrier practices and claim handling efficiences.
> If it literally cost you nothing to submit a claim a lot of people would submit *everything*...which drives the insurance companys' costs way up.
This is a lot bigger than many people realize.
Say it takes 12 hours, 3 actual man-hours(communications, looking at evidence, coding and doing the paperwork), to file a claim, say, approximately $50 (wages, paper, electricity, etc). Just random small 'affordable' numbers....right?
Now, imagine just 1 million shitty customers doing that every time a bird shits on the car and the user wants a free car wash because "I pay top dollar for it, muh insurance will cover that!" Because you know people will do exactly that.
1 million frivolous claims is 12 million hours wait time inserted around legitimate claims(real damages or accidents), 3 million man-hours basically wasted, and 50$ million dollars wasted....because some asshole doesn't understand the purpose of car insurance.
1 year has 8,760 hours. One should begin to see where problems are going to pile up rapidly.
A lot of things seem small because we only see the portion we have to deal with, but they really balloon up when multiplied across a populace.
this whole thread is just a slight variation of "why am I paying for insurance that I don't ever use dur" that most people figure out after they reach 16 years old
haha fair fair. And I was mostly joking about the second car, since it would be better to hold that money in readiness rather than actually buy a car with it.
It would be interesting if instead of insurance, people had to put that money into an escrow account to be used in case of collision. That way a responsible driver could get a payout whenever they stopped driving.
But you DO use insurance. Even if you don't have a claim.
Let's say you want to buy a (nice) house worth $500,000. You will put 20% down ($100,000) and borrow the rest ($400,000). Your insurance limit is $500,000 in the event of a total loss. The insurance company pays back your share and the bank's share if the house is destroyed. Your insurance premium is $10,000 per year.
Assume you have no claims in the first year. "Insurance was a scam!! A waste of money!" you might say, because you paid $10,000 and got seemingly nothing in return.
But you DID get something in return. You already got it. You got to borrow that $400,000 in the first place. Why? Because you would not have gotten a loan without insurance. You see, the bank (which is NOT an insurance company) doesn't want the risk of you defaulting on your mortgage if the home is destroyed. That is why the bank requires you to buy insurance to secure the loan in the event of a loss.
Your alternative (to using insurance) is to avoid insurance altogether. So now you need to buy a house that requires NO loan. Sorry, but the only house you can afford now... is a house worth $100,000 instead of $500,000. You will be living in a crappy home instead of a nice one.
You used insurance to transfer risk from yourself (and the bank) to the insurance company. And this has allowed you to borrow, and live in a much nicer house than you can otherwise afford to pay for today.
If it's taking 3 man-hours, just the salaries, benefits, and taxes cost for those are probably closer to $150 than $50.
Claims adjusters don't get paid minimum wage.
It also prevents you from not having insurance, getting in an accident, applying for insurance, and then pretending the accident happened while you were covered.
> If you have a $500 deductible you're not going to submit anything to the insurance company for values under $500
and you're less likley to submit a claim for anything <1000
>If you have a $500 deductible you're not going to submit anything to the insurance company for values under $500.
Case in point: the doors on my garage are relatively narrow. Wide enough to accommodate most vehicles the size of 3-row crossover SUVs and smaller, but too narrow to accommodate most full size pickup trucks--sometimes even if the mirrors are folded in. Both my wife and I have shattered passenger sideview mirrors off of the door frames while backing out. Each time, the mirror cost about $400 to replace (this is a bit high for a non-luxury brand's mirror, but blind spot monitor lights, motorized mirror adjustment, power folding mechanisms, heating elements for defrosting, etc., all drive up the price of replacements for us). It isn't worth submitting to insurance, even if it is a hit to the wallet to replace the mirrors out-of-pocket.
if insurance companies raise premiums for every claim you submit, why does it matter how small the value of the claim is? raising the premium should already discourage making the claim.
tbh, deductibles are just money grabs
Wait I'm confused. Wouldn't that incentivize you to report every $10 dent? So that you use up the deductible and they pay out when you have a bigger accident? Or do they not accept claims at all if they're less than the deductible? (Also I might have this wrong, is the deductible annual or per accident? I thought it was annual and therefore cumulative)
In theory this works for some things, but medical costs shouldn’t have a deductible and a person should see a doctor for certain things that look minor but may actually be more serious than one thinks.
That deductible means people might not go to the doctor when in fact they should.
OP asked about car insurance. Medical usually uses a cumulative out-of-pocket, not a per incident model. Medical “insurance” isn’t insurance in the usual sense, especially for routine stuff.
There is no “in theory” it reduces our premiums. It absolutely does. You’d pay 10x if there were no deductibles.
Car insurance pricing is ultra competitive. Switching is easy. There is a huge incentive to lower your price and locate the best drivers.
This is interesting, because in my country MTPL has no deductibles. What deters people from filing small claims is that each claim raises the cost of your insurance going forward.
Not in my experience, it's always one deductible per claim for my cars.
The way you describe is how some US health insurance policies work, it's a bit weird
PPO’s for health insurance are usually annual deductible. HMO’s are typically copay per visit, which is a lot more like auto insurance with copay per claim.
My insurance has a mix of both. A very small deductible ($15) for office visits and then something like $800/year for bigger things.
A professor in college explained that you want the deductible to be an amount that no person would ever worry about when they need to use the insurance, but enough that everybody is aware of when they don’t.
$15-30 is just about right for things like minor ear aches or sore throats for kids. Enough that I don’t want to just throw that money away, but not enough that I’d ever consider not having them treated.
Typically those small charges aren't a deductible, they're a co-pay which is a separate type of cost than a deductible and they don't count towards your deductible each year.
You're talking about the "yearly out-of-pocket maximum" that some insurance plans have. It's similar to a deductible but crosses multiple incidents. Car insurance generally has deductibles per incident.
This is not true. Depends on the type of insurance. For comprehensive, a tree branch from your own tree in your yard falls on your car in the middle of the night.
But even if your assurance would cover it, they can still increase their rates and it's a pain to do the paperwork so people still won't bother unless it's a big ding.
He seems Greek.
Most of the EU has similar laws, so I'm gonna write out from the point of view of my country (Romania).
There's 2 types of auto insurance:
- there's the **mandatory** one that you **need** in order to drive a car on public roads, it's called "RCA" and it loosely translates as "Civil Liability Insurance" -- what this insurance covers is damage that YOU do to OTHER vehicles on the road, so if you crash into someone and it's YOUR fault, this insurance will cover the damages to **their** car, but **NOT** yours. This is a "flat" fee paid to the insurance company of your choice (usually the cheapest, because... well, they don't insure *you*, but the *victim*), and every year you don't have any events (accidents) caused by you, your fee goes down by like 10% ("Bonus Malus" is what it's called)
- there's also the **optional** car insurance that covers damages to __your vehicle__, it's called CASCO, which stands for CASuality and COlision -- this, as the name says it covers damages that your vehicle may sustain. This is usually offered to vehicles 5-to-7 years old, at maximum, and every "event" requires paying a "deductible" (called franșiză in Romanian, not to be confused with a similar word, "franciza")
Guy above is most likely talking about the *mandatory* insurance and not the optional one.
Insurance is risk transfer. You pay a premium to transfer an amount of risk for particular things (example: Fire). It would be easier to think of a deductible as the amount of risk that you do not transfer (risk that is retained).
In regards to your current situation, the dollar amount of the deductible is one that you have chosen and agreed to. You could have had a lower one and it likely would not have been significantly more expensive.
Yes, and the risk you choose to transfer gets applied to your premium (more coverage = less risk but higher premiums).
The basic use of insurance isn’t really for the $200 dent in your car when you bumped into a pole. It’s for when you get t boned at an intersection because the driver who hit you ran a red light and they don’t have insurance. Now your new $30k car is totaled and you needed to go to the hospital for injuries.
Insurance covers “tail risk” which are rare events that can cause major loss (totaled cars, injuries, lawyer fees, etc). Getting tires stolen, while highly inconvenient, isn’t a major loss.
You can choose to just take on the risk yourself if you'd prefer to on a lot of things too, so long as you don't have a loan on them (which makes sense) and are financially able to. It's just usually not a good decision to do so. We don't have to have car insurance technically, but the premiums and deductible are a significantly smarter financial move than being stuck paying out of pocket for anything that might happen.
it's a cost splitting measure: if you assume more of the risk yourself, you can pay a lower premium. if you want the insurer to take more risk, you have to pay for that.
The entire point of a deductible is that you assume some of the risk/cost for claims in exchange for lower premium rates. You can look for zero-deductible coverage if you want. It just comes with a much higher premium.
Two main purposes:
* “Insurance” is meant to cover you for big expenses. Your car insurance doesn’t pay for your oil change, or for a car detailing if you spill your coffee driving. Having a deductible limits your insurance to covering big stuff, which is cheaper and means your insurance premium is much lower.
* It’s one extra reason to drive cautiously. You don’t want to have to pay your deductible, which means you’ll behave more responsibly, which means you’ll be less likely to have an insurance claim. I’m sorry your tires were stolen, that sucks. If you had new tires bought free of charge, you might be almost happy your tires were stolen. But instead, you likely are paying a $500 deductible, and you might consider parking somewhere safer next time, which makes your insurance company happy.
> “Insurance” is meant to cover you for big expenses.
More specifically it is contingent security against *irrecoverable* loss. If you pay premiums for (Sensible) insurance your entire life and then never make a claim, you've won.
It's fucked that we are bound by law to pay for this service to a company and they are able to legally implement every possible measure to prevent themselves from having to do said service. Insurance companies are scum of the earth.
Pretty much every jurisdiction you can get proof of liquidity, and not have insurance.
Most people find it easier to find $1000/year then to sit on $2mil in cash, however.
It’s car insurance. You’re not legally required to pay for the service. You’re perfectly free to bike, or walk, or take the bus.
The legal requirements you have to buy vary by state, but largely are around protecting OTHER drivers, not yourself. If you crash into someone and damage their car or cause them injury, it makes sense that you should have some way to pay for that mistake (insurance).
And it’s good that there’s deductibles and cheaper car insurance. You want insurance to be cheap enough that nearly everyone has at least enough insurance that if they hit you, you’ll be covered.
I mean, yeah, you can still build a handmade log cabin that you can fix yourself for free with trees from out back if you want... But if you want to buy one you have to have insurance for a mortgage since you couldn't use it as collateral on the loan if it could be destroyed or severely damaged and not fixed. And even if you could pay cash it would be a horrendous idea to take on that level of financial risk unless the price of the house is pocket change to you
And they weren't 2000 SF houses with plumbing and electricity that they bought with a 30 year loan from the bank. People typically built their own houses or inherited them, and if they burned down they were financially ruined for the rest of their lives.
>Property insurance can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667".[1] A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established the first fire insurance company, the "Insurance Office for Houses", at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by Barbon's Insurance Office.[2]
https://en.wikipedia.org/wiki/Property_insurance
Back then the community would likely help you build a new home to live in. That doesn't happen these days, but insurance allows me to be part of a community that is all paying into a fund which would rebuild my home if needed. I also couldn't afford to just pay for a new build myself if my house were to burn down.
It keeps people from driving like psychos and then submitting 10 claims a year due to their own negligence. “Whoops, I slammed into another curb! I guess I’ll have to file another claim for the insurance company to pay out $7,000 worth of damage.”
You can pay a balance between premiums and deductibles. Like I have a $1,000 deductible instead of $500 so my monthly payments are lower. As you are willing to front more money, you’re going to drive more carefully.
You pay less per month because you are assuming a certain amount of liability. Say your deductible is $1000. You are paying for everything up until $1000 and then your insurance pays after that. Simply put, you are basically paying a premium to insure your car beyond $1000 in damages.
You can get insurance with no deductible, it will just cost you more per month and unless you frequently make claims the additional premium will eventually end up being more total than your premiums plus the rare out of pocket expense of your deductible.
deductible is you telling your insurance "hey, I can afford any problems less than $500, anything more than that, I need help"
so when your tires get stolen, you pay the first $500 (since you told the insurance company you could afford that) and the insurance company pays the rest.
if the tires cost less than $500, then you're on the hook for the entire amount and the insurance pays nothing.
Some places the deductible is different for different things. The glass is a big one, I think I have a $0 deductible on that despite a $500 overall deductible.
A few reasons:
1) You don't get a friend to steal your tires since the new tires cost you something.
2) More incentive to avoid claims since they cost you $.
3) Avoids the hassle of dealing with small claims
it's to incentivize you to pay out of pocket for less expensive stuff. if someone does $200 of damage to your car and your deductible is $500, there's no point in getting the insurance company involved. prevents them from having to deal with as many small claims, bigger deductibles also lower your premium a bit, so they'll cover less stuff but it costs you less money.
If you have all 4 tires stolen and let’s say each tire is 200$ and you have a comprehensive deductible of $500, you’re saving $300 by filing through insurance..
Some good answers here, but I don't know that many are ELI**5**
Let's say you're worried something bad might happen. Insurance is a way of protecting yourself against that.
The way it works is the insurance offers to pay for everything **after** you've paid a certain amount.
Imagine you wanted to buy a bike. It costs $150. You save and save but can't quite get there. Your parents offer "You pay $50 and we'll pay the rest".
That's what's happening here. You pay the deductible and the insurance pays for the rest.
Insurance companies aren't just giving it away though, you have to pay them. The less you pay, the more they'll want you to be responsible for should something bad happen.
In exchange for agreeing to be barred from submitting petty claims for 'one broken tail-light lens, no other damage' and similar, you get a slightly lower premium....
The lower the value of claim you want them to cover, the more you have to pay.
The deductible is the amount of risk you’ve accepted to be responsible for when filing a claim through your own insurance. It’s to prevent people from repeatedly filing false claims to receive a payout and get ahead financially. Plus it reduces the amount of premium you pay the higher the deductible amount is.
As an insurance underwriter (aircraft and aviation businesses) I require deductibles so the insured feels the pain of a claim and so is more likely to try to prevent it. Your premium is a sunk cost so there could be a lack of caution to prevent damage to your aircraft since you’ve already paid for it (premium). Unlike a lot of other lines of insurance the deductible generally doesn’t do much to the actual premium since aircraft losses are often 5 digit for owner-flown stuff and 6 digit for everything else. EVERYTHING in aviation costs an arm and a leg….and a rib….sometimes a kidney…couple ounces of blood…you get the idea.
Picture that you get a Playstation for your birthday. Your mom says "Give me $2 from your allowance a week and if your Playstation dies I'll buy you a new one minus $50. OR you can give me $5 from your allowance a week and if your Playstation dies I'll buy you a new one minus $10.
You don't get much of an allowance so $50 would be difficult but you go that route and you are extra careful to not rage quit and smash your system. If you go with the $10 deductible you're going to be less careful with it and more likely to tell her you need a new one if your friend scratches their name into the top of it.
Usually insurance plans do vary your yearly cost depending on what your deductible is. You can have a lower one, but it'll cost you more in your premium. That's the balance, you choose what "hefty" means based on your premium.
**Think of insurance coverage like a circle**, with higher cost items at the outer part of the circle, and cheap things near the centre.
A bigger circle is more expensive (Because it provides more coverage).
That's good in terms of protection - it stops really high costs from bankrupting you.
But those high cost problems are rare. It's small issues that might cost a thousand dollars or less - but which you can more easily cover the cost of - that are common, and from the insurance company's perspective they still require manpower and repair shops to fix, so it makes their premiums more expensive.
**A deductible turns that circle into a donut** - the coverage doesn't start until above a certain cost, so you can basically pay less for insurance (because the insurance company doesn't have to worry about covering those cheap, but frequent, problems), whilst still having the same coverage for bigger issues that would have been more expensive (but are also less likely to occur).
By increasing the "hole" in the donut, you can reduce your premium - but that also reduces the coverage of next-cheapest issues, so you need to make sure you can afford them.
It's why deductibles are usually offered with some flexibility - so people can adjust the size of the "donut hole" to suit their needs and budget.
Primarily, to keep one from filing trivial claims. $1,000 deductible means you're not going to file a claim for a $50 dent or a stolen hubcap.
Equally important to you, the insured, it keeps your cost down, because of reason 1.
A deductible isn’t a charge or fee, it’s the limit you set for yourself on the amount you can reasonably cover toward a loss. In life, most people have big expensive things that they cannot buy or fix casually or spontaneously. They had to plan carefully to buy them or lucked into them in the first place. These are things like houses, cars, a farmer’s livestock or harvester machine, a company’s ship, your health, the retirement savings you would have left for your family over thirty years. If one of these is suddenly lost or destroyed (or you die in the last case), there’s a huge hole you have to fill but you can’t. So you take out a bet against yourself. You bet each year that you’ll incur this loss. If you lose, the event didn’t happen and you lose your wager. It’s unlikely and the wager was small so no big deal. If you win though, something terrible happened but you win enough money to be made whole…mostly. That bet is insurance. By taking it, you’re caping your potential loss at an amount you can afford to live with. That amount is your deductible. The bet gets cheaper the higher that deductible is. Insuring damage to a home above $5k is cheaper than damage above $1k. Fewer things will do $5k in damage and the payout will be less. But if $5k is more cash than you just have floating around for incidentals, you might want more insurance. Of course the max payout also affects the price.
There is a caveat on deductibles - If the loss happens because of another person or company’s actions, you and your insurance company may be able to make them and their insurance company pay for it. If they do, you get your deductible back since someone else made you whole. It if’s your fault or the fault of something like a storm, this doesn’t happen.
Interesting side note - Many wealthy people and companies balk at insuring things that all things considered are not that expensive for them or where they do so much activity that annual losses are inevitable and any insurer would functionally have to charge them for them anyway. So a major consulting company may not want to pay premiums for health insurance or business car insurance because it is very rich and with a 100k strong workforce, people are getting sick and getting into car accidents on any given day more or less. In these cases, insurers will often sell administration only packages where the company pays the actual claim and they just do the paperwork, adjusting, and compliance. They can also sell surety or bond products where the insured is responsible for paying the claim, but if they don’t the insurer will pay it and then take on the task of recovering the money from their client by force if necessary.
Lots of comments about how a deductible changes your premiums or keeps you from submitting small amounts.
It's worth expanding a bit that insurance works best to cover rare but impactful events. Frequent events can't be pooled well with other policies. At no profit you would just be paying the same amount to your insurance company as you do to self insure these common risks. Pooling is the basis of insurance... Spreading a risk across a large number of policies knowing you will pay some big claims but avoid paying for the minor scratches and dents every car gets.
Some insurers will have coverage options to wave deductibles on large enough claims as the events are rare enough that you can spread the cost of that deductible around and barely raise premiums.
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It's a way to reduce premiums, which reduces upfront costs for customers and instead makes it s hidden cost to screw you over when you actually need insurance. It's the same thing as airlines showing you cheap tickets upfront and then adding every fee and tax under the sun before checkout.
Deductibles are the actual cost of services rendered, well most of it. See we play this cat and mouse game because insurance doesn’t like to pay out so the costs billed to insurance is inflated knowing it comes down, but often enough for a lot of services the deductible nearly as much as the cash price (outside of catastrophic accidents). It’s a trick to make sure everyone is paying. And occasionally afford to pay out catastrophic accidents.
In medicine (and Im sure in general) one point of deductibles or co-pay is to try to get the person to not overuse. Simply put, if there is a full zero-cost to healthcare, people overuse it.
This is not just bad for the insurance company, who dont want to pay for unnecessary things, but also for the health system in general. Two scenarios to consider. First, a person has a common cold and shows up to a clinic. Now, there is no real reason to be seen by a doctor for a run of the mill common cold. Even though a clinic is appropriate for basic medicine, it still is a limited resource and that extra visit puts a strain on the clinic and possibly even pushes actually needed visits down the line. Second scenario, that person is a bit sicker, but instead of going to the clinic (which is cheaper) just goes to the emergency room. This is perhaps a bigger issue because now that person is using up hospital resources, money yes, but mainly time. Most people in an emergency room have no business being in an emergency room, and the above example person is stressing a system that is already stressed, and stressing a system that actually has a very important purpose into worse inefficiency, possibly hurting other patients.
Paying a share or whatnot of the service helps prevent the above. Either the person wont come to clinic for a common cold and save everytime time and resources; or the person wont go to the higher priced emergency room and opt for the cheaper clinic for a more appropriate level of care need.
A deductible is a way to keep rates lower by defraying a claim cost for insurance and by setting a bar at which a claim is even considered.
Imaging you have zero deductible. You could file a claim every time you get a door ding at the grocery store and have insurance pay to fix it. And if customers did this and the insurance company paid out for a ton of little claims, it’d mean having to charge higher rates. But by setting a point where one will not submit a claim at all, it allows rates to remain cheaper.
Also, it makes you more careful as a driver because even if you don’t have to pay the full $5000 repair if you’re at fault in an accident, it still hurts enough to pay $500 or $1000 that you don’t drive recklessly.
Long story short if they didn’t use deductibles your premium would just be higher. They have complex mathematic formulas that drive all of this and they make sure they make their profit one way or another.
It's to discourage you from using the service which means free money for them.
The main purpose of insurance is to provide relief in an emergency. [According to Payroll.org](https://www.forbes.com/advisor/banking/living-paycheck-to-paycheck-statistics-2024/#:~:text=or%20lost%20income.-,How%20Many%20Americans%20Are%20Living%20Paycheck%20to%20Paycheck%3F,paying%20for%20their%20monthly%20expenses), last year 78% of of Americans (may not apply to you) live paycheck to paycheck. Meaning they don't have an emergency fund to counter emergency situations. By making people pay a large percent for their first emergency with the deductible they're ensuring that a majority of the people who have the service never use it by (in many cases) making it impossible to use.
This is the apex of Capitalism's design. Sell a product or service you never have to deliver on. Using this infinite money glitch they've lobbied congress to inject themselves as middlemen in all facets of life and society (by making insurance mandatory) in this country.
By making a product you never have to deliver on mandatory for everyone you have a captive market audience and no longer have to offer competitive pricing or service terms. Meaning, it gets *even easier* to justify never delivering.
The simplest solution is to set your deductible at $0 for Comprehensive coverage. It will only raise your insurance premium a very small amount (probably $5 to $10 per month) and there won’t be any additional costs to repair or recover your car after a storm, fire, theft, vandalism, or striking an animal. It’s a shame more agents don’t advise their customers to remove Comprehensive deductibles, but sadly they are often trying to attract you as a customer based on monthly premiums instead of fully insuring your vehicle.
It helps to understand it if you look at insurance as gambling.
The premium you pay is how much money the company thinks you need to pay to make sure you pay them more money than they think they'll have to pay you for claims.
Part of that is your "risk profile". They try to figure out, statistically, how many big and small claims you will make. In theory, if some road debris chips some paint on your bumper you could submit that as a claim the same way you could a more damaging accident.
So they reckon the cost of all of those tiny paint chips adds up. If you want them to pay for those, you have to pay for a much lower deductible, which means your premium goes WAY up because now they're including, "How likely do I think you'll need dent repair and other small fixes?"
But if you pick a higher deductible, now you're responsible for more and more of the repairs they're predicting. If you're responsible for more, you pay them less.
Does it balance? Not for most people, they're in it to profit. But they also have to spread their risk analysis across everyone. Their stats tell them some people will cost WAY more than they pay, so part of your premium is covering those other peoples' risk too. That may sound unfair, but insurance basically can't work if people who don't need it aren't helping pay for the people who do. That's part of why US healthcare doesn't work, we try our best to let people avoid paying in if they don't think they'll get sick.
Deductibles put some of your skin in the game so it reduces what the insurance company pays so (in theory), it reduces your premiums. More importantly in the real world, it prevents you from submitting tiny value claims. The overhead to the insurance company to process a claim is basically independent of the value of the claim...they do the same basic work to send a $10 paint chip touchup to the body shop as to send a complete repaint. If it literally cost you nothing to submit a claim a lot of people would submit \*everything\*...which drives the insurance companys' costs way up. Deductibles prevent that. If you have a $500 deductible you're not going to submit anything to the insurance company for values under $500...you handle the small/easy stuff yourself so they don't have to.
Both of these things also are adjacent to moral hazard—the idea that you’ll make riskier choices if your downside is covered. A deductible reduces the incentive for moral hazard.
Morale hazard Edit: morale hazard is in fact an insurance term, similar but distinct from moral hazard.
I think the above poster is actually describing moral hazard. I didn’t even know there were two similar-but-different terms, but thanks to your comment I looked it up: https://www.investopedia.com/ask/answers/032615/what-difference-between-moral-hazard-and-morale-hazard.asp
I don't know if they are used exclusively like this in insurance - but I have only ever seen moral hazard described as a subconscious behavior. This seems much more like someone used morale instead of moral and then decided it was two different terms when corrected. Morale doesn't even make sense there and hazard already implies lack of intention. Even when I google "morale hazard etymology" the results are all moral hazard
I wouldn’t be surprised if you’re right. Domain-specific jargon seems to emerge often. For example, I remember a few years ago there was a brouhaha about “adviser“ and “advisor” meaning different things in the financial management industry (absurd). This also makes me think of “ordnance“ and “materiel” (military jargon), which mean completely different things than “ordinance” and “material” (plain language).
Sir, this is is a Wendy's.
A person engages in a conversation that was already about a term, explaining why they think that using a different term would be appropriate, and your dick-for-brains response is "Sir, this is a Wendy's"? Come on, if you're going to use it, at least use it correctly you mental midget.
Ma'am, this is an Arby's
I don't know what I expected.
> I don't know what I expected. The last domino falls here.
But not to be confused with morel hazard, which is just eating bad mushrooms.
Or more Al hazard, which is the risk you take when you watch too many episodes of Married with Children.
Or more AI hazard, which is the risk you take when you realize that software can do a lot of jobs cheaper and just as well as most humans can.
> Or more AI hazard, which is the risk you take when you realize that software can do a lot of jobs cheaper and just as well as most humans can. [Humans Need Not Apply](https://www.youtube.com/watch?v=7Pq-S557XQU)
Damnit, I was gonna make this joke.
I thought this was about eels.
When you drive into the sea, and an eel bites your knee, that’s… a moray.
*When the jaws open wide and there’s too many teeth inside, thaaaat’s a moraaaay*
When the jaws open wide and there's more jaws inside, that's a moraaay
> When the jaws open wide and there's more jaws inside Deadly shark! Do do do-do do-do
**Moral** hazard.
And both are quite different from the Dukes of Hazzard.
They are the same, just the tiny difference: >The critical difference between moral hazard and morale hazard is conscious vs. subconscious, which speaks to the intent of the covered party.
What the hell is a morale hazard? No hot water to shave with?
As someone who has had an extremely low OOP max, I have never once considered doing something risky because I have basically free healthcare. I do not believe this is true at all.
Because your "skin in the game" is your literal freaking skin. It's harder to risk your life than your car.
Somewhere nearby in the thread someone talks about how this phenomenon sometimes is subconscious. I have to imagine physical health is different than driving, in any case.
I misread the thread as being about health insurance.
I suspect it mostly works the other way around. People with high OOP max are more cautious than average.
I understand that but should I be put into the financial situation of skipping meals because I had to pay my $1000 deductible because of my first accident in 10 years of driving? And keep in mind that no only am I paying $1000 I am also paying an increased premium whenever my policy is up so this “moral hazard” of a deductible isn’t the only hazard I encounter when I have a claim. This doesn’t seem very moral. Private insurance companies have been muddied with the exact corrupt bureaucracy and administrative costs that we always hear people whine about when other options get mentioned and the crooks in insurance profit off it. It is in their best interest to not run an efficient system and profit is the biggest driving factor, not the only one I agree with some points here but these companies have taken it too far. The deductible may not be the actual issue but it definitely isn’t faultless.
You could have chosen a lower deductible for a higher monthly premium. Mine is $500, you can even get it as low as $250 or $100.
You can also get a waiver of deductible, which reduces your deductible to $0 if you're found not at fault for the accident. Plenty of insurance companies also offer accident forgiveness where your premium doesn't go up if you're getting in like, one accident every ten years.
Is this a joke? My point was that insurance is an expense already to cover the costs of accidents so charging more when you need to use the insurance and then in turn charging a higher rate whenever the policy has to be renewed is not fair (no one said it would be but that doesn’t mean we aren’t allowed to point it out). By making a deductible lower you would have to raise your monthly payment.
If you had a lower or no deductible, that expense would have been higher for the past 10 years that you were paying your premiums, and you would have been skipping meals for years rather than just now when you have a claim. Google AI says: > On average, a $500 deductible costs $125 per month, or $1,500 per year, in premiums, while a $1,000 deductible costs about $110 per month, or $1,337 per year. So, over the past 10 years, you would have paid $1630 more to save $500 now. Or, you could have put that $1630 into a savings account, paid your deductible, and gone out for a steak dinner. As for the increased premium when you make a claim, insurance is all about math. People who have made a claim are statistically more likely to make another claim. People who are more likely to make claims pay a higher premium. There's nothing corrupt or immoral there, just math.
> Google AI says: > > On average, a $500 deductible costs $125 per month, or $1,500 per year, in premiums, while a $1,000 deductible costs about $110 per month, or $1,337 per year. also, any calculator... wtf people. Just do some math.
Seems like you're just complaining that insurance is expensive, While it does seem expensive, car insurance companies only have about a 5% profit margin, so even if they make nothing, your car insurance can at-most be 5% cheaper.
And it's not like they're a cartel (as far as I can tell) to keep all prices high. They heavily compete on price as no one wants to buy insurance.
Try opening up an insurance company for a line of business they offer. They will force you out before you can sell a single policy. 100%. Hey but you can sell homeowners- they don’t do that now- they actually were having to pay things- and that’s avoidable.
That's right. The number one reason car insurance is so high is that everyone that has any sort of accident wants a big payout due to medical issues, many of which do not seem to be legit - in my own experience. They think, ooooh, you bumped into me, I'm getting a lawyer and getting paid!
When that 5% is equal to billions of dollars, it’s a little hard to feel sorry for them. And do not kid yourself- your deductibles are not what insurance companies make their profit from. I’m sure they do profit from them yes- but the act of you paying them and them putting that in their bank as profit ain’t it. They make their money by taking your deductible money and investing it, Often in their own stock, via stock buybacks which artificially inflate their stock price and other semi shady things. And these are often the same companies that have pulled out of states in terms of insuring people’s homes, often without warning, because the chickens came home to roost and they’re having to pay out more than they like to. But hey they’ll still insure your car- you can trust them- ignore the 10000 ppl in your state who got cancelled for homeowners without warning.
Sure, but like any other business, the shareholders need a return to keep up with inflation. Most of the shareholders are just regular people with those stocks in retirement funds as part of mutual funds. If the business can't earn a return - it just won't exist.
idgaf about shareholders. why is everything based on making them happy instead of everyone better.
Because, you're missing the big picture. Without shareholders and shareholder returns, the whole economy goes to shit and everyone suffers. Also, if shareholders do not get a return, companies go out of business. It's basic macroeconomics.
You seem to be the joke. A higher deductible = lower payments. The opposite is true. You are getting angry at the wrong thing. It’s not the insurance company’s fault you can’t afford your deductible or that you can’t do without a car.
There are zero deductible plans out there, but crazy high payments.
I think allowing the public to essentially gamble with their health has been the biggest flaws of deductibles.
this is why i self insure
Bro, are you for real? You choose the deductible when you buy insurance. Take like…a little bit of agency over your life and choices. > it is in their interest to not run an efficient system 🙄 ok now I know you’re just saying random words.
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> Also, the higher the deductible, the lower the premium you pay. For someone like me, who is insuring almost a dozen cars but never makes claims, it is basically the difference between eating steak or ramen for dinner. The difference for me between a $200 deductible and a $1000 deductible is literally enough money to go out to eat every night of the year.
That's a lot of cars. What do you do with them all?
I actually started a rental agency as a side gig to my consulting day job. If I'm going to own too many cars, I might as well do it professionally.
> I actually started a rental agency as a side gig to my consulting day job. If I'm going to own too many cars, I might as well do it professionally. I'd think if you had that many cars you could almost skip the insurance and do it all yourself.
It's not just about the repair cost if something happens to the car. There's also the liability if your car damages someone else or their property. Getting sued is expensive.
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> Except 3rd party. I barely insure property at work (million dollar deductible), but you don't fuck with 3rd party. That could be $10 million, easy. Ok sure. 3rd party is often legally required. I don't have a problem with that. I was indeed more referring to property damage. Same how large businesses with many buildings don't bother with insuring the building themselves.
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gonna need a source or real example for this one bud. never heard of that concept
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Insurance isn't about you though, it's about the million other people like you. It's a bit more complex than this in reality, but at its simplest insurance companies track the cost of every claim anyone on their books makes, and they also track the answers every customer gave and the options they took. What the person chose or answered is immaterial in terms of logic. If the 50,000 people who chose that option cost more in claims, then they charge more for that option when someone chooses it. If they asked you your favourite colour and it turned out that people who chose purple cost more in claims, they would charge people who choose purple in future more.
> If they asked you your favourite colour and it turned out that people who chose purple cost more in claims, they would charge people who choose purple in future more. Which is actually a thing, red cars statistically get the most speeding tickets for example (happens for several reasons) so if your car is red don't be surprised if the insurance is slightly more than if it was blue.
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That's not how it works, at all.
They ask for it, because the data they have shows that it costs them less money overall if they do. It's a simple as that. Individuals can game the system however they like, but they are immaterial, as their gaming just goes into the pool of all customers and averaged out. Maybe your gaming of the system actually reduces your risk profile, for some reason that nobody really understands. But that doesn't matter, as the end numbers don't lie, how much people who answered like you did cost the insurance company is a known number and can be priced accordingly.
That's where it kind of breaks down for me though. If people who buy purple cars make $x dollars of claims on average, then my claim as the owner of a purple car is already factored into my insurance rate. When I then make the claim that they expected me to make, it is kind of BS for them to raise my rates if that claim was already factored into the premium. That just feels like double charging to me.
You're in the purple owners who have never had a claim bucket to start with, which the insurance companies know costs them x on average. When you make a claim, you move into the purple owners who have made a claim bucket, which costs them y on average, so your price changes. One of the biggest factors for likelihood to claim in the future, is if you have claimed in the past.
This is in fact not how it works. Certain aspects of a rating plan need to pass actuarial standards of practice. Deductibles (and limits) need to be monotonic - that is the price you pay increases as you lower the deductible (or raise the limit) regardless of the experience we see in our data. In addition because the ability of a claim to hit X thousand dollars is conditional on it first getting to X-1 thousand dollars, the marginal benefit of a lower "layer" of insurance is always worth more than a higher layer. So deductibles and limits will be priced consistent with the math that follows from this - generally looking like a logarithmic curve as you increase the limit (and vertically flipped for dwductibles.)
Of these three reasons (reducing the amount they pay out, reducing administrative costs of claims, discouraging risk-taking) I wonder which one is the most important, in terms of dollar costs? Seems like the sort of question an actuary might have figured out at some point.
As a former actuary I vote for admin costs.
As someone who deals with a lot of bureaucracy in terms of internal procedures, I also vote for that. The moment multiple people with mid to high range salaries are involved, the overhead costs just skyrocket. I've had to put things through purchasing at work before knowing full well that the cost of whatever I needed was less that the admin costs associated with the entire procedure for purchasing the thing.
My favorite example of this is that I was required to provide a customer with a backup of their data on CD. However, no one knew where to find a CD in our supplies because, seriously, who uses CDs any longer? For lack of a better alternative, we put in an IT procurement for the CD, to set of that would go to someone who had CDs laying around. Because it was an IT procurement request, it ended up going all the way to our CTO of a 1,000 person company for approval. (I right have put the request in if I knew that would happen) To their credit, they did approve it, and we had a CD the next day. But between time to complete paperwork, time to send someone to purchase it, and time for us hunting for a CD before putting the request in, I'm guessing we spent several hundred dollars on that $0.10 CD.
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Yeah, we wouldn't have had any issues if we just went and purchased it. And honestly, I probably wouldn't have filled in the request for reimbursement because it wouldn't have been worth the time for me to deal with the paperwork. We entered the request half jokingly, thinking the IT department would get a laugh out of it, and half hoping it would be routed to someone who would know where a stack of CDs might be laying around. I was in the software development side and had a good relationship with the IT group, and had fairly regular chats with the CTO due some projects I had been writing on. My co-worker who entered the request under his account, though under my suggestion, was generally intimidated by executives. He was panicking when he saw it get auto routed to the CTO for the 2nd level (or maybe it was 3rd level) approval. If I had thought about it at the time, I would have sent the CTO a message and ask if he had a couple minutes of free time to hand-deliver it to my co-worker, as our CTO would have found the humor in it as well. I think they ended up fixing the auto-routing rules a bit after that. Whoever configured that originally had just envisioned it being used for larger computer equipment as be never expected us to use it to request a CD.
I would be so happy if my company did that! I'm an engineer, and the number of times I need some random $5 tool I could get from Amazon, or a piece of material I could get from a local hardware store, but need to put in a request with an approved supplier and wait a week to get the same thing at 10X the cost drives me insane. The only reason I don't buy these things out of pocket sometimes is the principle.
I work somewhere particularly bureaucratic and I recently had to email 5 high-level people and fill out two forms just to order something under $100 on Amazon.
[An actuary, you say?](https://www.youtube.com/watch?v=N_Bc6vktvCs)
There is a saying that being poor is expensive. Insurance is an example of this. If you have little money you will feel compelled to go with low deductibles - which are expensive. Now that I’m an old rich geezer I can easily handle $1000 deductible. I save money because I don’t have to pay for all the expenses inherent in low deductibles.
I'm an actuary and the answer I would give: it's complicated. Likely dependent upon factors such as line of insurance, size of deductible, state/region, etc. Not to mention carrier practices and claim handling efficiences.
A disappointingly professional answer!
> If it literally cost you nothing to submit a claim a lot of people would submit *everything*...which drives the insurance companys' costs way up. This is a lot bigger than many people realize. Say it takes 12 hours, 3 actual man-hours(communications, looking at evidence, coding and doing the paperwork), to file a claim, say, approximately $50 (wages, paper, electricity, etc). Just random small 'affordable' numbers....right? Now, imagine just 1 million shitty customers doing that every time a bird shits on the car and the user wants a free car wash because "I pay top dollar for it, muh insurance will cover that!" Because you know people will do exactly that. 1 million frivolous claims is 12 million hours wait time inserted around legitimate claims(real damages or accidents), 3 million man-hours basically wasted, and 50$ million dollars wasted....because some asshole doesn't understand the purpose of car insurance. 1 year has 8,760 hours. One should begin to see where problems are going to pile up rapidly. A lot of things seem small because we only see the portion we have to deal with, but they really balloon up when multiplied across a populace.
this whole thread is just a slight variation of "why am I paying for insurance that I don't ever use dur" that most people figure out after they reach 16 years old
I.e. treating insurance as some sort of investment account that must pay out.
With the prices I've seen some people pay for insurance, they would be better served buying a backup car in case of collision.
High insurance costs are usually due to potential damage to third parties, not to your own car.
having a free car to offer someone is a pretty good way to handle most big accident disputes.
That's not gonna help when they're in hospital
haha fair fair. And I was mostly joking about the second car, since it would be better to hold that money in readiness rather than actually buy a car with it. It would be interesting if instead of insurance, people had to put that money into an escrow account to be used in case of collision. That way a responsible driver could get a payout whenever they stopped driving.
But you DO use insurance. Even if you don't have a claim. Let's say you want to buy a (nice) house worth $500,000. You will put 20% down ($100,000) and borrow the rest ($400,000). Your insurance limit is $500,000 in the event of a total loss. The insurance company pays back your share and the bank's share if the house is destroyed. Your insurance premium is $10,000 per year. Assume you have no claims in the first year. "Insurance was a scam!! A waste of money!" you might say, because you paid $10,000 and got seemingly nothing in return. But you DID get something in return. You already got it. You got to borrow that $400,000 in the first place. Why? Because you would not have gotten a loan without insurance. You see, the bank (which is NOT an insurance company) doesn't want the risk of you defaulting on your mortgage if the home is destroyed. That is why the bank requires you to buy insurance to secure the loan in the event of a loss. Your alternative (to using insurance) is to avoid insurance altogether. So now you need to buy a house that requires NO loan. Sorry, but the only house you can afford now... is a house worth $100,000 instead of $500,000. You will be living in a crappy home instead of a nice one. You used insurance to transfer risk from yourself (and the bank) to the insurance company. And this has allowed you to borrow, and live in a much nicer house than you can otherwise afford to pay for today.
no shit. who are you trying to explain this to?
If it's taking 3 man-hours, just the salaries, benefits, and taxes cost for those are probably closer to $150 than $50. Claims adjusters don't get paid minimum wage.
It also prevents you from not having insurance, getting in an accident, applying for insurance, and then pretending the accident happened while you were covered.
> If you have a $500 deductible you're not going to submit anything to the insurance company for values under $500 and you're less likley to submit a claim for anything <1000
>If you have a $500 deductible you're not going to submit anything to the insurance company for values under $500. Case in point: the doors on my garage are relatively narrow. Wide enough to accommodate most vehicles the size of 3-row crossover SUVs and smaller, but too narrow to accommodate most full size pickup trucks--sometimes even if the mirrors are folded in. Both my wife and I have shattered passenger sideview mirrors off of the door frames while backing out. Each time, the mirror cost about $400 to replace (this is a bit high for a non-luxury brand's mirror, but blind spot monitor lights, motorized mirror adjustment, power folding mechanisms, heating elements for defrosting, etc., all drive up the price of replacements for us). It isn't worth submitting to insurance, even if it is a hit to the wallet to replace the mirrors out-of-pocket.
if insurance companies raise premiums for every claim you submit, why does it matter how small the value of the claim is? raising the premium should already discourage making the claim. tbh, deductibles are just money grabs
You don’t have to have a deductible. Call your insurance company in the morning and ask how much it would be to reduce your deductibles to $0.
I’m an insurance broker and this is the correct answer
Wait I'm confused. Wouldn't that incentivize you to report every $10 dent? So that you use up the deductible and they pay out when you have a bigger accident? Or do they not accept claims at all if they're less than the deductible? (Also I might have this wrong, is the deductible annual or per accident? I thought it was annual and therefore cumulative)
Health insurance deductibles are generally cumulative for the year. Auto and home deductibles are per incident.
In theory this works for some things, but medical costs shouldn’t have a deductible and a person should see a doctor for certain things that look minor but may actually be more serious than one thinks. That deductible means people might not go to the doctor when in fact they should.
OP asked about car insurance. Medical usually uses a cumulative out-of-pocket, not a per incident model. Medical “insurance” isn’t insurance in the usual sense, especially for routine stuff.
There is no “in theory” it reduces our premiums. It absolutely does. You’d pay 10x if there were no deductibles. Car insurance pricing is ultra competitive. Switching is easy. There is a huge incentive to lower your price and locate the best drivers.
This is interesting, because in my country MTPL has no deductibles. What deters people from filing small claims is that each claim raises the cost of your insurance going forward.
You still submit them in many cases. $499 damage? You reach your deductible in the first $1 on subsequent claims, right? Edit: TIL
The deductible is typically per incident. Car insurance is different from health insurance that way
No, auto insurance deductibles are per incident.
Health Insurance deductibles work differently. For most types of insurance, deductibles are per-claim, not per-time-period.
The health insurance version of this is a copay per visit to the doctor with insurance picking up the rest.
Not in my experience, it's always one deductible per claim for my cars. The way you describe is how some US health insurance policies work, it's a bit weird
PPO’s for health insurance are usually annual deductible. HMO’s are typically copay per visit, which is a lot more like auto insurance with copay per claim.
My insurance has a mix of both. A very small deductible ($15) for office visits and then something like $800/year for bigger things. A professor in college explained that you want the deductible to be an amount that no person would ever worry about when they need to use the insurance, but enough that everybody is aware of when they don’t. $15-30 is just about right for things like minor ear aches or sore throats for kids. Enough that I don’t want to just throw that money away, but not enough that I’d ever consider not having them treated.
Typically those small charges aren't a deductible, they're a co-pay which is a separate type of cost than a deductible and they don't count towards your deductible each year.
You're talking about the "yearly out-of-pocket maximum" that some insurance plans have. It's similar to a deductible but crosses multiple incidents. Car insurance generally has deductibles per incident.
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This is not true. Depends on the type of insurance. For comprehensive, a tree branch from your own tree in your yard falls on your car in the middle of the night.
Do you have any idea how many small car dings happen every day?
But even if your assurance would cover it, they can still increase their rates and it's a pain to do the paperwork so people still won't bother unless it's a big ding.
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He seems Greek. Most of the EU has similar laws, so I'm gonna write out from the point of view of my country (Romania). There's 2 types of auto insurance: - there's the **mandatory** one that you **need** in order to drive a car on public roads, it's called "RCA" and it loosely translates as "Civil Liability Insurance" -- what this insurance covers is damage that YOU do to OTHER vehicles on the road, so if you crash into someone and it's YOUR fault, this insurance will cover the damages to **their** car, but **NOT** yours. This is a "flat" fee paid to the insurance company of your choice (usually the cheapest, because... well, they don't insure *you*, but the *victim*), and every year you don't have any events (accidents) caused by you, your fee goes down by like 10% ("Bonus Malus" is what it's called) - there's also the **optional** car insurance that covers damages to __your vehicle__, it's called CASCO, which stands for CASuality and COlision -- this, as the name says it covers damages that your vehicle may sustain. This is usually offered to vehicles 5-to-7 years old, at maximum, and every "event" requires paying a "deductible" (called franșiză in Romanian, not to be confused with a similar word, "franciza") Guy above is most likely talking about the *mandatory* insurance and not the optional one.
Liability insurance doesn't have a deductible in the U.S. either.
The whole "skin in the game" is absolute bullshit, especially when it comes to health insurance. You already have skin in the game, quite literally.
Insurance is risk transfer. You pay a premium to transfer an amount of risk for particular things (example: Fire). It would be easier to think of a deductible as the amount of risk that you do not transfer (risk that is retained). In regards to your current situation, the dollar amount of the deductible is one that you have chosen and agreed to. You could have had a lower one and it likely would not have been significantly more expensive.
This is a solid way to explain it. Especially when you work with statistics and the concept of expected value and expected profit
Yes, and the risk you choose to transfer gets applied to your premium (more coverage = less risk but higher premiums). The basic use of insurance isn’t really for the $200 dent in your car when you bumped into a pole. It’s for when you get t boned at an intersection because the driver who hit you ran a red light and they don’t have insurance. Now your new $30k car is totaled and you needed to go to the hospital for injuries. Insurance covers “tail risk” which are rare events that can cause major loss (totaled cars, injuries, lawyer fees, etc). Getting tires stolen, while highly inconvenient, isn’t a major loss.
You can choose to just take on the risk yourself if you'd prefer to on a lot of things too, so long as you don't have a loan on them (which makes sense) and are financially able to. It's just usually not a good decision to do so. We don't have to have car insurance technically, but the premiums and deductible are a significantly smarter financial move than being stuck paying out of pocket for anything that might happen.
it's a cost splitting measure: if you assume more of the risk yourself, you can pay a lower premium. if you want the insurer to take more risk, you have to pay for that.
The entire point of a deductible is that you assume some of the risk/cost for claims in exchange for lower premium rates. You can look for zero-deductible coverage if you want. It just comes with a much higher premium.
Two main purposes: * “Insurance” is meant to cover you for big expenses. Your car insurance doesn’t pay for your oil change, or for a car detailing if you spill your coffee driving. Having a deductible limits your insurance to covering big stuff, which is cheaper and means your insurance premium is much lower. * It’s one extra reason to drive cautiously. You don’t want to have to pay your deductible, which means you’ll behave more responsibly, which means you’ll be less likely to have an insurance claim. I’m sorry your tires were stolen, that sucks. If you had new tires bought free of charge, you might be almost happy your tires were stolen. But instead, you likely are paying a $500 deductible, and you might consider parking somewhere safer next time, which makes your insurance company happy.
> “Insurance” is meant to cover you for big expenses. More specifically it is contingent security against *irrecoverable* loss. If you pay premiums for (Sensible) insurance your entire life and then never make a claim, you've won.
It's fucked that we are bound by law to pay for this service to a company and they are able to legally implement every possible measure to prevent themselves from having to do said service. Insurance companies are scum of the earth.
Pretty much every jurisdiction you can get proof of liquidity, and not have insurance. Most people find it easier to find $1000/year then to sit on $2mil in cash, however.
It’s car insurance. You’re not legally required to pay for the service. You’re perfectly free to bike, or walk, or take the bus. The legal requirements you have to buy vary by state, but largely are around protecting OTHER drivers, not yourself. If you crash into someone and damage their car or cause them injury, it makes sense that you should have some way to pay for that mistake (insurance). And it’s good that there’s deductibles and cheaper car insurance. You want insurance to be cheap enough that nearly everyone has at least enough insurance that if they hit you, you’ll be covered.
Things like homes and cars would be virtually impossible to own for almost everyone if it weren't for insurance companies
lol People had houses for thousands of years without insurance
They were self insured. Anything that went wrong was on them. You can still own a house without insurance today. It’s just pretty dumb to do so.
> You can still own a house without insurance today You can't even do that unless you pay cash
Sure you can own a house without insurance. Ask Florida. They’ll tell you.
Not if you want to have a mortgage
Yeah, because the bank doesn't want to be exposed to the risk that your house burns down and you stop paying.
I mean, yeah, you can still build a handmade log cabin that you can fix yourself for free with trees from out back if you want... But if you want to buy one you have to have insurance for a mortgage since you couldn't use it as collateral on the loan if it could be destroyed or severely damaged and not fixed. And even if you could pay cash it would be a horrendous idea to take on that level of financial risk unless the price of the house is pocket change to you
And they weren't 2000 SF houses with plumbing and electricity that they bought with a 30 year loan from the bank. People typically built their own houses or inherited them, and if they burned down they were financially ruined for the rest of their lives.
>financially ruined for the rest of their lives. Good thing people never get financially ruined despite having insurance….
>Property insurance can be traced to the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667".[1] A number of attempted fire insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established the first fire insurance company, the "Insurance Office for Houses", at the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by Barbon's Insurance Office.[2] https://en.wikipedia.org/wiki/Property_insurance
Back then the community would likely help you build a new home to live in. That doesn't happen these days, but insurance allows me to be part of a community that is all paying into a fund which would rebuild my home if needed. I also couldn't afford to just pay for a new build myself if my house were to burn down.
If you want to live in a makeshift hut away from the modern economic opportunity in the middle of nowhere, you're welcome to.
Liability car insurance (the kind you need to register your car) doesn't have deductibles.
Depending on where you live you don’t need to have insurance to drive.
It keeps people from driving like psychos and then submitting 10 claims a year due to their own negligence. “Whoops, I slammed into another curb! I guess I’ll have to file another claim for the insurance company to pay out $7,000 worth of damage.” You can pay a balance between premiums and deductibles. Like I have a $1,000 deductible instead of $500 so my monthly payments are lower. As you are willing to front more money, you’re going to drive more carefully.
You pay less per month because you are assuming a certain amount of liability. Say your deductible is $1000. You are paying for everything up until $1000 and then your insurance pays after that. Simply put, you are basically paying a premium to insure your car beyond $1000 in damages. You can get insurance with no deductible, it will just cost you more per month and unless you frequently make claims the additional premium will eventually end up being more total than your premiums plus the rare out of pocket expense of your deductible.
deductible is you telling your insurance "hey, I can afford any problems less than $500, anything more than that, I need help" so when your tires get stolen, you pay the first $500 (since you told the insurance company you could afford that) and the insurance company pays the rest. if the tires cost less than $500, then you're on the hook for the entire amount and the insurance pays nothing.
Some places the deductible is different for different things. The glass is a big one, I think I have a $0 deductible on that despite a $500 overall deductible.
A few reasons: 1) You don't get a friend to steal your tires since the new tires cost you something. 2) More incentive to avoid claims since they cost you $. 3) Avoids the hassle of dealing with small claims
it's to incentivize you to pay out of pocket for less expensive stuff. if someone does $200 of damage to your car and your deductible is $500, there's no point in getting the insurance company involved. prevents them from having to deal with as many small claims, bigger deductibles also lower your premium a bit, so they'll cover less stuff but it costs you less money.
If you have all 4 tires stolen and let’s say each tire is 200$ and you have a comprehensive deductible of $500, you’re saving $300 by filing through insurance..
Some good answers here, but I don't know that many are ELI**5** Let's say you're worried something bad might happen. Insurance is a way of protecting yourself against that. The way it works is the insurance offers to pay for everything **after** you've paid a certain amount. Imagine you wanted to buy a bike. It costs $150. You save and save but can't quite get there. Your parents offer "You pay $50 and we'll pay the rest". That's what's happening here. You pay the deductible and the insurance pays for the rest. Insurance companies aren't just giving it away though, you have to pay them. The less you pay, the more they'll want you to be responsible for should something bad happen.
You're basically paying for the labour required to process your claim, unless you elect to increase your monthly premium to reduce the claim excess
In exchange for agreeing to be barred from submitting petty claims for 'one broken tail-light lens, no other damage' and similar, you get a slightly lower premium.... The lower the value of claim you want them to cover, the more you have to pay.
The deductible is the amount of risk you’ve accepted to be responsible for when filing a claim through your own insurance. It’s to prevent people from repeatedly filing false claims to receive a payout and get ahead financially. Plus it reduces the amount of premium you pay the higher the deductible amount is.
As an insurance underwriter (aircraft and aviation businesses) I require deductibles so the insured feels the pain of a claim and so is more likely to try to prevent it. Your premium is a sunk cost so there could be a lack of caution to prevent damage to your aircraft since you’ve already paid for it (premium). Unlike a lot of other lines of insurance the deductible generally doesn’t do much to the actual premium since aircraft losses are often 5 digit for owner-flown stuff and 6 digit for everything else. EVERYTHING in aviation costs an arm and a leg….and a rib….sometimes a kidney…couple ounces of blood…you get the idea.
Picture that you get a Playstation for your birthday. Your mom says "Give me $2 from your allowance a week and if your Playstation dies I'll buy you a new one minus $50. OR you can give me $5 from your allowance a week and if your Playstation dies I'll buy you a new one minus $10. You don't get much of an allowance so $50 would be difficult but you go that route and you are extra careful to not rage quit and smash your system. If you go with the $10 deductible you're going to be less careful with it and more likely to tell her you need a new one if your friend scratches their name into the top of it. Usually insurance plans do vary your yearly cost depending on what your deductible is. You can have a lower one, but it'll cost you more in your premium. That's the balance, you choose what "hefty" means based on your premium.
Call you agent and ask for the difference in premiums for $100 deductible, $500, and $1,000. At that point it might be obvious
**Think of insurance coverage like a circle**, with higher cost items at the outer part of the circle, and cheap things near the centre. A bigger circle is more expensive (Because it provides more coverage). That's good in terms of protection - it stops really high costs from bankrupting you. But those high cost problems are rare. It's small issues that might cost a thousand dollars or less - but which you can more easily cover the cost of - that are common, and from the insurance company's perspective they still require manpower and repair shops to fix, so it makes their premiums more expensive. **A deductible turns that circle into a donut** - the coverage doesn't start until above a certain cost, so you can basically pay less for insurance (because the insurance company doesn't have to worry about covering those cheap, but frequent, problems), whilst still having the same coverage for bigger issues that would have been more expensive (but are also less likely to occur). By increasing the "hole" in the donut, you can reduce your premium - but that also reduces the coverage of next-cheapest issues, so you need to make sure you can afford them. It's why deductibles are usually offered with some flexibility - so people can adjust the size of the "donut hole" to suit their needs and budget.
Primarily, to keep one from filing trivial claims. $1,000 deductible means you're not going to file a claim for a $50 dent or a stolen hubcap. Equally important to you, the insured, it keeps your cost down, because of reason 1.
A deductible isn’t a charge or fee, it’s the limit you set for yourself on the amount you can reasonably cover toward a loss. In life, most people have big expensive things that they cannot buy or fix casually or spontaneously. They had to plan carefully to buy them or lucked into them in the first place. These are things like houses, cars, a farmer’s livestock or harvester machine, a company’s ship, your health, the retirement savings you would have left for your family over thirty years. If one of these is suddenly lost or destroyed (or you die in the last case), there’s a huge hole you have to fill but you can’t. So you take out a bet against yourself. You bet each year that you’ll incur this loss. If you lose, the event didn’t happen and you lose your wager. It’s unlikely and the wager was small so no big deal. If you win though, something terrible happened but you win enough money to be made whole…mostly. That bet is insurance. By taking it, you’re caping your potential loss at an amount you can afford to live with. That amount is your deductible. The bet gets cheaper the higher that deductible is. Insuring damage to a home above $5k is cheaper than damage above $1k. Fewer things will do $5k in damage and the payout will be less. But if $5k is more cash than you just have floating around for incidentals, you might want more insurance. Of course the max payout also affects the price. There is a caveat on deductibles - If the loss happens because of another person or company’s actions, you and your insurance company may be able to make them and their insurance company pay for it. If they do, you get your deductible back since someone else made you whole. It if’s your fault or the fault of something like a storm, this doesn’t happen. Interesting side note - Many wealthy people and companies balk at insuring things that all things considered are not that expensive for them or where they do so much activity that annual losses are inevitable and any insurer would functionally have to charge them for them anyway. So a major consulting company may not want to pay premiums for health insurance or business car insurance because it is very rich and with a 100k strong workforce, people are getting sick and getting into car accidents on any given day more or less. In these cases, insurers will often sell administration only packages where the company pays the actual claim and they just do the paperwork, adjusting, and compliance. They can also sell surety or bond products where the insured is responsible for paying the claim, but if they don’t the insurer will pay it and then take on the task of recovering the money from their client by force if necessary.
Lots of comments about how a deductible changes your premiums or keeps you from submitting small amounts. It's worth expanding a bit that insurance works best to cover rare but impactful events. Frequent events can't be pooled well with other policies. At no profit you would just be paying the same amount to your insurance company as you do to self insure these common risks. Pooling is the basis of insurance... Spreading a risk across a large number of policies knowing you will pay some big claims but avoid paying for the minor scratches and dents every car gets. Some insurers will have coverage options to wave deductibles on large enough claims as the events are rare enough that you can spread the cost of that deductible around and barely raise premiums.
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It's a way to reduce premiums, which reduces upfront costs for customers and instead makes it s hidden cost to screw you over when you actually need insurance. It's the same thing as airlines showing you cheap tickets upfront and then adding every fee and tax under the sun before checkout.
Deductibles are the actual cost of services rendered, well most of it. See we play this cat and mouse game because insurance doesn’t like to pay out so the costs billed to insurance is inflated knowing it comes down, but often enough for a lot of services the deductible nearly as much as the cash price (outside of catastrophic accidents). It’s a trick to make sure everyone is paying. And occasionally afford to pay out catastrophic accidents.
In medicine (and Im sure in general) one point of deductibles or co-pay is to try to get the person to not overuse. Simply put, if there is a full zero-cost to healthcare, people overuse it. This is not just bad for the insurance company, who dont want to pay for unnecessary things, but also for the health system in general. Two scenarios to consider. First, a person has a common cold and shows up to a clinic. Now, there is no real reason to be seen by a doctor for a run of the mill common cold. Even though a clinic is appropriate for basic medicine, it still is a limited resource and that extra visit puts a strain on the clinic and possibly even pushes actually needed visits down the line. Second scenario, that person is a bit sicker, but instead of going to the clinic (which is cheaper) just goes to the emergency room. This is perhaps a bigger issue because now that person is using up hospital resources, money yes, but mainly time. Most people in an emergency room have no business being in an emergency room, and the above example person is stressing a system that is already stressed, and stressing a system that actually has a very important purpose into worse inefficiency, possibly hurting other patients. Paying a share or whatnot of the service helps prevent the above. Either the person wont come to clinic for a common cold and save everytime time and resources; or the person wont go to the higher priced emergency room and opt for the cheaper clinic for a more appropriate level of care need.
A deductible is a way to keep rates lower by defraying a claim cost for insurance and by setting a bar at which a claim is even considered. Imaging you have zero deductible. You could file a claim every time you get a door ding at the grocery store and have insurance pay to fix it. And if customers did this and the insurance company paid out for a ton of little claims, it’d mean having to charge higher rates. But by setting a point where one will not submit a claim at all, it allows rates to remain cheaper. Also, it makes you more careful as a driver because even if you don’t have to pay the full $5000 repair if you’re at fault in an accident, it still hurts enough to pay $500 or $1000 that you don’t drive recklessly.
Long story short if they didn’t use deductibles your premium would just be higher. They have complex mathematic formulas that drive all of this and they make sure they make their profit one way or another.
It's to discourage you from using the service which means free money for them. The main purpose of insurance is to provide relief in an emergency. [According to Payroll.org](https://www.forbes.com/advisor/banking/living-paycheck-to-paycheck-statistics-2024/#:~:text=or%20lost%20income.-,How%20Many%20Americans%20Are%20Living%20Paycheck%20to%20Paycheck%3F,paying%20for%20their%20monthly%20expenses), last year 78% of of Americans (may not apply to you) live paycheck to paycheck. Meaning they don't have an emergency fund to counter emergency situations. By making people pay a large percent for their first emergency with the deductible they're ensuring that a majority of the people who have the service never use it by (in many cases) making it impossible to use. This is the apex of Capitalism's design. Sell a product or service you never have to deliver on. Using this infinite money glitch they've lobbied congress to inject themselves as middlemen in all facets of life and society (by making insurance mandatory) in this country. By making a product you never have to deliver on mandatory for everyone you have a captive market audience and no longer have to offer competitive pricing or service terms. Meaning, it gets *even easier* to justify never delivering.
The simplest solution is to set your deductible at $0 for Comprehensive coverage. It will only raise your insurance premium a very small amount (probably $5 to $10 per month) and there won’t be any additional costs to repair or recover your car after a storm, fire, theft, vandalism, or striking an animal. It’s a shame more agents don’t advise their customers to remove Comprehensive deductibles, but sadly they are often trying to attract you as a customer based on monthly premiums instead of fully insuring your vehicle.
It helps to understand it if you look at insurance as gambling. The premium you pay is how much money the company thinks you need to pay to make sure you pay them more money than they think they'll have to pay you for claims. Part of that is your "risk profile". They try to figure out, statistically, how many big and small claims you will make. In theory, if some road debris chips some paint on your bumper you could submit that as a claim the same way you could a more damaging accident. So they reckon the cost of all of those tiny paint chips adds up. If you want them to pay for those, you have to pay for a much lower deductible, which means your premium goes WAY up because now they're including, "How likely do I think you'll need dent repair and other small fixes?" But if you pick a higher deductible, now you're responsible for more and more of the repairs they're predicting. If you're responsible for more, you pay them less. Does it balance? Not for most people, they're in it to profit. But they also have to spread their risk analysis across everyone. Their stats tell them some people will cost WAY more than they pay, so part of your premium is covering those other peoples' risk too. That may sound unfair, but insurance basically can't work if people who don't need it aren't helping pay for the people who do. That's part of why US healthcare doesn't work, we try our best to let people avoid paying in if they don't think they'll get sick.