Premium vs. Deductible: The Seesaw Analogy You Need to Understand

Let’s be honest: Insurance contracts are designed to be boring. They use words like “indemnification” and “actuary” just to confuse us.

But there are two words you absolutely must understand before you sign anything: Premium and Deductible.

If you get these wrong, you are either overpaying every month, or you’re going to have a heart attack when you actually file a claim.

The “Seesaw” Effect

Think of your car or home insurance policy like a playground seesaw.

• On one side sits your Premium. This is the boring bill you pay every month (or every 6 months) just to keep the policy active.
• On the other side sits your Deductible. This is the amount of money you have to pay out of your own pocket before the insurance company pays a single dime to fix your car or house.

Here is the golden rule: When one goes down, the other goes up.

Which one should you choose?

I get asked this all the time: “Should I pick the $500 deductible or the $1,000 one?”

Here is my non-official, just-between-us advice:

1. Pick the High Premium / Low Deductible IF:
You are the kind of person who has very little cash in your savings account right now. If a $1,000 emergency repair bill would ruin your month, you are better off paying a slightly higher monthly bill to keep that deductible low (like $250 or $500). Peace of mind costs a little extra each month.

2. Pick the Low Premium / High Deductible IF:
You have a healthy emergency fund. If you can write a check for $1,000 or $2,000 today without sweating, then why pay the insurance company extra every month? Raise your deductible, lower your monthly bill, and bank the difference.

The Bottom Line
Don’t just auto-renew your policy. Look at your “Dec Page” (Declarations Page). If you have $5,000 in the bank but you are still paying extra for a $250 deductible, you are throwing money away.