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.
Auto insurance risk selection
When the premium is not mandated by the government, it is usually derived from the calculations of an actuary based on statistical data. The premium can vary depending on many factors that are believed to affect the expected cost of future claims. Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).