Deductible
Deductibles are typically used to deter the large number of claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings. As a result, insurance premiums are typically cheaper when they involve higher deductibles. For example, health insurance companies offer plans with high premiums and low deductibles, or plans with low premiums and high deductibles. One plan may have a premium of $1,087 a month with a $6,000 deductible, while a competitive plan may have a premium of $877 a month with a $12,700 deductible. The consumer with the $6,000 deductible will have to pay $6,000 in health care costs before the insurance plan pays anything. The consumer with the $12,700 deductible will have to pay $12,700.
Vehicle insurance in the United States
One common misconception in the United States is that vehicles that are financed on credit through a bank or credit union are required to have "full" coverage in order for the financial institution to cover their losses in case of an accident. Insurance requirements vary between financial institutions and each state. Minimum deductibles and liability limits (required by some leasing companies) would be outlined in the loan contract. Failure to carry the required coverages may lead to the lienholder purchasing insurance and adding the cost to the monthly payments or repossession of the vehicle. Vehicles purchased with cash or paid off by the owner are generally required to only carry liability. In some cases, vehicles financed through a "buy-here-pay-here" car dealership—in which the consumer (generally those with poor credit) finances a car and pays the dealer directly without a bank—may require comprehensive and collision depending on the amount owed for the vehicle.