Deductibles can be tricky. It took me a while to fully grasp the strategy behind them when I first started, so don’t feel bad if you are confused.

Essentially, a deductible is your contribution to the claim. If you have a $500 deductible, you are agreeing to pay the first $500 of damage before we pay the rest.

The Teeter-Totter Effect

There is an inverse relationship between your deductible and your premium. If you want the cheapest monthly payment possible, we can raise your deductible to something like $2,000.

You are essentially betting on yourself. You are saying, “Pragasen, I am a great driver, I won’t crash.” By taking on that $2,000 risk yourself, your insurance company lowers your premium .

However, if you want a low deductible (so you pay very little out of pocket in an accident), your monthly premium will be higher.

When Not to File

Here is a golden rule:

If your deductible is $500 and you have a minor scrape worth $600, do not file a claim. You would only be getting $100 from the insurance company, but you would be putting a “claim” mark on your permanent record.

It is just not worth it. Save the insurance for the big stuff.