A lot of people don’t think much about the effect that a deductible has on the premium. Life insurance doesn’t have any deductibles, but most other types of insurance do.
For instance, a 30-year-old woman with a $1,000 deductible on her health insurance might have a premium of $236 per month. If she raised her deductible to $2,500, the premium would drop to $176 a month, and if she went on up to a $5,000 deductible, her premium would be $142 a month.
Here’s an example with a married couple, both 40 years old, using the same plan as in the first example. With a $1,000 deductible, their premium would be $581. Using a $2,500 deductible, their premium would be $428. And going up to a $5,000 deductible, their premium would drop to $342.
For most reasonably healthy people, it usually makes sense to choose a medium to high deductible. However, there is a danger that people will just waste the money that they save. The best way to avoid that is to set up a Heath Savings Account (HSA). This is a special savings account used to save money for medical bills.
Using the example of the married couple, let’s say that they have had a deductible of $1,000, which they raise to $5,000. They then save $239 per month. They set up an HSA and put the whole $239 into it for the next eleven months. The twelfth month they spend the money on their regular doctor’s visit. Then they save the $239 for the next eleven months. At this point, they will have $5,258 in their HSA and thus they have sufficient money on hand to pay their full deductible should one of them become seriously sick or injured.
Or if they both stay healthy for five years, then they will have $13,145 in their HSA.
This relationship between premiums and deductibles is the same for every type of insurance that has deductibles.