I recently had an insurance claim for $1,000, and I had to pay $500 of it myself because that was my "deductible." I thought I bought insurance so I wouldn't have to pay for losses myself. What gives? -- Disgruntled by Deductibles

Dear Disgruntled:

We all learned in math class that deducting one number from another is the same as subtracting it. Well, it works much the same way in "Insurance 101." The deductible is the amount that you agree will be "deducted" from what the insurance company pays when you have a claim. Therefore, it is the portion of the claim that you have to pay. So if you have a deductible of $500 on your homeowners insurance and you suffer a $1,000 loss, as you did, you pay $500, and the insurance company pays the rest -- in this case, $500.

Deductibles apply on both your property and your car insurance, except in automobile insurance, the deductible does not apply if the loss or damage is caused by fire or lightning, or if the entire vehicle is stolen (as long as you have bought insurance to protect against these perils in the first place). Most insurance companies have a minimum acceptable deductible, but you can choose a higher one in order to save money on your annual insurance premium. The higher the deductible, the lower the premium.

But why do you have to pay anything at all when you have a claim, you ask? There are several reasons. Because deductibles reduce the amount that an insurance company must pay when there is a claim, they help keep premiums down and make insurance more affordable for all of us. They also eliminate claims being made for minor damage, like nicks and scrapes on a car, that would be too costly to administer. And since the insured has to pay a portion of the loss or damage, deductibles encourage consumers to be more conscious of safety and loss prevention.

If you are thinking about choosing a higher deductible to save on your premium, ask yourself: if I suffered a major loss tomorrow, could I pay my deductible out of my pocket?

Before you opt for a higher deductible, find out what you would save in the long run. Ask your insurance provider how much your premium would be with a $1,000 deductible versus a smaller amount. Suppose you would save $100 annually -- or maybe even more -- with a higher deductible. But then suppose you have a serious claim. Could you pay $1,000 of that claim to replace something you need?

There are no hard and fast rules -- it's your decision. You do the math -- or the arithmetic!