State Farm Auto Insurance Practice Test

How does a higher deductible affect Collision Insurance premiums?

1. It increases the premiums

2. It has no effect on premiums

3. It lowers the premiums

4. It is only applicable for older cars

The correct answer is: It lowers the premiums

Choosing a higher deductible typically results in lower Collision Insurance premiums. The deductible is the amount you agree to pay out of pocket before the insurance coverage kicks in. When you opt for a higher deductible, you are assuming more of the financial risk in the event of an accident, which reduces the insurance company's potential payout. As a result, insurance providers often reward policyholders with lower premiums when they select higher deductibles. This approach reflects the insurance principle that when individuals bear more risk, the likelihood of the insurer needing to pay out becomes lower, which in turn can create cost savings for the insured. Other options might imply different scenarios, but they do not accurately reflect the relationship between deductibles and premiums in the context of Collision Insurance.