Insurance Premium

It's what you pay to be insured.

Want a million dollar life insurance policy and you're in good health in your 20s? Then you'll pay an insurance premium of about 50 bucks a month for the privilege. Want to insure your car for any damages above 5 grand? Then you'll pay a premium, priced mostly based on how valuable your car is...like, how much damage could there be if there was a really bad crash? The key determinants of premiums revolve around the size of the deductible and the risk factors to the insurance company backing the risk.

If you have a $100 deductible on your car, then every time the door is dinged and you want it fixed, you take it in to Manny's Mangled Motors, and you get a bill for $372 for the fix-it job. You pay $100 out of your own pocket, and the insurance company pays the remaining $272. And the first time that happened, they'd raise rates on you a whole lot, because you'll clearly be an expensive insuree for them.

But if your deductible was 5 grand, then things run differently. If you first have to come up with 5k out of your own pocket, then it's likely you rarely or almost never call the insurance company unless the crash has been pretty awful. So if you were the insurance company, you'd charge a whole lot less for premiums with a 5k deductible than a $100 one.

And, of course, the cost is vastly different if you're insuring a Honda Accord versus a Bentley.