Decoding Deductibles and Comprehending Premiums

We all have a chance of breaking our leg, getting in a car accident, or having our house split down the middle by a tornado. Most of us are pretty sure it won’t happen to us—so why do we pay for insurance? Because it’s a way to handle risk. After all, paying a few bucks a month is easier and cheaper than paying a huge chunk of money if something bad does actually happen.

How Does Insurance Work?

Consider this example: Say your apartment building has 100 apartments, and one gets robbed every year. When an apartment is robbed, it typically costs the tenant around $10,000 to replace everything. If there’s no insurance, any time an apartment gets robbed, the tenant has to pay that full $10,000 out of pocket.

Let’s say the building gets insurance that covers losses from theft and requires all the tenants to pay $100 dollars a year. Now, when someone gets robbed, they’re only out $100. The new insurance provides the rest of the money to replace the stolen stuff. Sure, the other tenants are out $100, but they have the peace of mind that they’ll be covered if this happens to them.

OK, but How Does Real Insurance Work?

Real insurance takes into account a lot more factors. If some of those tenants never lock their doors, the insurance company might charge them a higher rate because they’re a higher risk. The insurance company may give a special discount to people who install bars on their windows or buy a second deadbolt. Or they may have research and data that show that a first-floor apartment is 25% more likely to be broken into.

Insurance companies take all of these little things into account when determining the monthly rate, which they call a premium. For example, that’s why younger drivers pay more for insurance than older drivers.

Remember our building insurance company from a few paragraphs ago? Let’s say they let you pay a premium of only $25 per year instead of $100 for the same $10,000 coverage. But there’s a catch: if something happens, you have to pay $2,500 out of your own pocket to get the remaining $7,500 for all of your stolen goods.

This $2,500 is called a deductible. If you have a high deductible, you usually pay a lower premium; if you have a lower deductible, you pay a higher premium. It just boils down to whether you play it safe and pay the money upfront, or risk it and accept that you’ll have to pay a bit more if something does happen.


About Tobin Lofts

We strive to provide the best San Antonio college apartments. Tobin Lofts is San Antonio, TX student housing at its finest!  We offer fully furnished apartments in San Antonio, TX, near San Antonio College campus, with all the fun SAC has to offer! With affordable rates, and a great student lifestyle — Tobin Lofts is much better than living in the dorms.