Generally, what is the relationship between deductible and premium on insurance policies?

The relationship between deductible and premium on insurance policies is defined by the principle of risk-sharing between the insured and the insurer. When an insured selects a higher deductible, they agree to pay more out of pocket before the insurance starts to cover costs. This increased financial responsibility for the insured reduces the risk for the insurer, leading to a decrease in the insurance premium. As a result, policyholders who choose higher deductibles typically enjoy lower premium costs.

This dynamic is based on the insurers’ calculations of expected losses and the associated costs of providing coverage. Higher deductibles generally indicate that the policyholder is willing to take on more risk, which allows the insurer to lower the overall cost of the insurance policy. Therefore, a higher deductible correlates with a lower premium.