Auto and home insurance policies include a deductible, which is a small portion of the claim that the policyholder pays first. For example, if your home policy has a $500 deductible, you would only be responsible for the first $500 of the claims cost. If the total damage costs less than $500, you would pay for it yourself.

Raising your deductible

Deductibles ensure that insurance pays for the major damages and losses instead of the minor ones. They also help to keep premiums low; raising your deductible is one way to lower your insurance premium. Because your deductible represents the extent to which you’re willing to insure yourself, a higher deductible results in a lower premium.

Remember, insurance is designed to cover the big losses. So, if you’ve had a significant loss, like a house fire that destroyed your kitchen, paying a deductible of $1,000 will seem small compared to the $50,000 paid by the insurance company. In the long term, the amount you save on premiums should compensate for the higher deductible when you have a claim.