Generally, the higher your deductible, the lower your premiums. Your deductible can affect the cost of your insurance premiums. If you pay a portion of the costs (your deductible), then your insurance carrier will have your back by covering the remaining balance. Think of paying deductibles as sharing the cost and risk of accidents and certain perils. Your home insurer covers the remaining $4,000. You pay $1,000 to replace your burned furniture and repair your scorched walls. The fire damage is covered under your homeowners policy and your out-of-pocket deductible is $1,000. Fortunately, you were able to extinguish the flame but only after it caused $5,000 in damages. Let's say an ember escapes from the fireplace and a fire spreads throughout your living room. Deductibles are typically required across most types of policies (e.g., homeowners, auto, renters, business, even health). A deductible is the amount of money that you're required to pay before your insurance company pays the difference on an approved insurance claim.