Insurance 101: What's a deductible? | PEMCO

November 3, 2023 by PEMCO Insurance

deductibles-(1).pngInsurance is a necessary part of each person’s financial safety net, offering protection and peace of mind in case the unexpected happens. However, understanding the ins and outs of insurance can be a bit daunting (and let’s be honest—even a bit boring). But don't worry...that’s why we’re here. 
One essential concept in the insurance world is the deductible. It’s probably a term you’ve heard before, but you may be wondering, “How does my deductible even work?” and “How does the amount of my deductible impact my insurance premium?” We’ve got you.  

When you know more about your insurance, you can make informed decisions to keep you (and the things that matter most to you) protected.  

What’s an auto insurance deductible? 

When you purchase an Auto Policy from PEMCO that covers damage to your vehicle, it will include a deductible. This is the amount you agree to pay out of your own pocket before your insurance kicks in to cover the rest of the cost, in the event of an accident or other covered loss. Keep in mind, when you are at fault for damage or injury to someone else, your liability coverage will kick in and you will not have to pay a deductible. Your liability will protect you from the first dollar all the way up to your policy's limit. 

How does an auto insurance deductible work? 

Let’s say you accidentally hit a deer late at night on a winding road, and the repair cost for your vehicle is $2,000, while your deductible is $500. In this scenario, you’re responsible for paying the first $500, and your insurance company will cover the remaining $1,500. 

Higher deductibles vs. lower deductibles 

Your auto insurance deductible is not set in stone; you can choose the amount when you buy or renew your policy. Typically, you'll have the option of selecting a higher or lower deductible. Deductibles are a “lever” that empower you to control costs and levels of protection based on your budget and needs. 

  • Higher Deductibles: If you opt for a higher deductible, such as $1,000, you'll likely have a lower premium (which can reduce monthly expenses). However, this means you'll be responsible for more of the upfront costs in the event of an accident or claim. It's a cost-saving strategy, especially if you're a safe and infrequent driver. However, if you need to make a claim or have a covered loss, it will be more out of your pocket than if you had a lower deductible. 

  • Lower Deductibles: Conversely, a lower deductible, say, for example, $250, will result in a higher premium. This means you'll pay more for your insurance monthly, but your out-of-pocket expenses will be lower in case of a claim. 

Consider your financial situation 

When deciding on your Auto deductible, it’s important to consider your financial situation. Ask yourself, “Can I comfortably afford to pay the deductible if an accident occurs?” 

While a high deductible can lower your premium and therefore, monthly expenses, make sure it’s a realistic amount to cover out of pocket, if you were to need to make a claim. 

What is a homeowners insurance deductible? 

 Just like Auto, your home insurance policy comes with a deductible. This is the amount you’re responsible for paying before your insurance covers any damage or loss to your home or personal belongings. 

How does a homeowners insurance deductible work? 

Suppose your home suffers $10,000 in damages due to a covered event, like an accidental fire in the kitchen, and your deductible is $1,000. In this case, you would pay the first $1,000, and your insurance company would cover the remaining $9,000. 

(Your insurance would also potentially pay for you to live elsewhere while your home is being repaired, if needed, and cover the cost of replacing damaged belongings. You can read more about that here.

Higher deductibles vs. lower deductibles: 

The concept is similar to auto insurance, but there are some differences when it comes to your home: 

  • Higher Deductibles: Selecting a higher deductible for your home insurance will likely result in a lower premium. This can be a wise choice if you're confident in your ability to cover the deductible in the event of a claim. 

  • Lower Deductibles: Opting for a lower deductible will likely increase your premium, but it can reduce the financial impact if you need to make a claim. Home insurance often covers more substantial losses, so having a lower deductible may be a smart move if your budget allows for it month to month. 

Making an informed choice 

When deciding on your homeowners insurance deductible, we recommend you assess your risk tolerance as an individual or family. How much are you comfortable paying out of pocket in the event of a covered loss?  

Consider walking through these steps to help make the right choice for you: 

  • Assess your finances: Evaluate your financial situation to determine what you can comfortably afford in the event of a claim. Consider savings and other investments. Remember, insurance is part of your financial safety net! 

  • Consider your risk tolerance: Think about how much financial risk you're willing to take on, based on your deductible options. You can also consider history (have you had to make a claim in the past?). 

  • Consult with an agent: Our licensed agents are available to help guide you through the process—you don’t need to go at it alone! You can reach us at 1-800-GO-PEMCO (1-800-467-3626) to discuss options and learn more about the right fit for you. 

At PEMCO, we hope you feel empowered to make informed decisions when it comes to your insurance, what it protects, and how it protects you, and we’ll always be here to guide you through the journey. That’s what insurance is for—so you can worry less and live more. 

Whether it's insurance for your home or your car, the right deductible can make a significant difference in your overall financial picture. By weighing the options and considering your own unique circumstances, the price of your deductible can help tailor your policy to better meet your needs. Above all, we want you to make an informed choice and ensure you're adequately protected if you need to make a claim. 

If you would like to learn more about your insurance, including how it works or what it covers, you can check out these similar articles: 


Difference between auto insurance coverages | PEMCO 

Should I buy rental car insurance? | PEMCO 


What is Personal Injury Protection (PIP)? ( 


How to save money on car insurance ( 


What is umbrella insurance? ( 

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