Why Deductibles Exist

Deductibles exist for three reasons. First, they fight moral hazard: people guard what costs them and spend freely what costs nothing.

Second, they filter small claims, since processing a 400 dollar claim costs the insurer real money in adjusting overhead that everyone would pay back in premium. Third, they let buyers keep premium down by self insuring the losses they can absorb, which is what insurance is meant to insure catastrophe, not inconvenience.

The trade is personal: the right deductible is the largest sum you could pay twice in a bad year without borrowing. Percentage deductibles for wind and quake work differently, scaling with the insured value of the home..