Compare Home Insurance Quotes Find great rates from top companies. You could save hundreds!

Choosing the Right Homeowners Insurance Deductible

Choosing the right amount of homeowners coverage is a tough decision. Determining how much to set your deductible at can be even more challenging. This is why we’ve created a guide to help.

counting money

Choosing the right amount of homeowners coverage is a tough decision. Determining how much to set your deductible at can be even more challenging. This is why we’ve created a guide to help.

When you buy insurance, you purchase what’s called a policy. A policy consists of monthly payments (premiums), and a deductible you must pay. We will spend the bulk of this article discussing how a deductible works in the context of a homeowners insurance policy.

Definition

First, let’s define what a deductible is. A deductible is what you have to pay out-of-pocket before your insurance coverage kicks in. Every time you file a claim, you must pay a deductible before your policy takes care of the rest. They can be calculated in the form of a dollar amount, or a percentage of your home’s insured value.

For example, say your home sustains $5,000 in damage, and you have a $500 deductible on your policy. You would pay that $500, and your insurer would pay the other $4,500.

Deductible vs. Premiums

The other part of the equation is a premium. This is a fixed amount of money that you pay to your insurer monthly. The premium is inversely related to the deductible in that the higher a policy’s premium, generally the lower the deductible, and vice versa. Your premiums and deductibles can be changed. If you are looking to save money, many insurance carriers suggest upping your deductible to lower your monthly payments.

Farmers Insurance Agent, Christine Folkers’ advice is to go with the deductible that is the highest you can comfortably afford. 

“If the difference between $5,000 and a $10,000 deductible is only a savings of $50/year premium, [it] doesn’t make sense to go with the $10k deductible for such a little risk-reward in your premium,” Folkers said.

How Much Coverage Should I Get?

A homeowners insurance policy’s premiums will vary depending on the city and state you live in, among many other factors. However, the average cost can be anywhere from $500 to $1,000 per year, for a couple hundred thousand dollars of coverage. To lower your premiums, the simple solution would be to set your deductible higher. There are a few different ways to assess how much coverage you should actually get.

  • Do you file many claims? If so, a higher deductible can save you a lot of money. For one, it will deter you from filing claims, because the threshold of what you have to pay out of pocket will be so high. You won’t want to file a claim for $1,000 in damages if the deductible is already $500.
  • Assess your Income. Before you decide that doubling the amount of your deductible is a great idea—consider what the financial consequences might be. Maybe a small fire starts in your garage and the damage will cost you around $3,000 to repair. If its set higher than $1,000, you would be paying almost half of what your insurer is paying.

    You should be setting the deductible at a reasonable amount. Don’t set it so high that you won’t be able to pay it if you have a claim.

  • Your Location. Do you live somewhere with a high crime rate? What about a high risk of natural disasters? If so, you should take these factors into account.

    Insurers tend to raise premiums if there is a high chance of risk or peril that could affect the structural integrity of your home. If this is the case for you, then you might consider a higher deductible—given that you will be able to save a little bit on your premiums.

    The bottom line is that it makes more sense to raise your deductible if you live in a location where your premiums are going to be high.

  • Natural Disaster Claims. It’s important to take into account whether you live in a region with a high possibility of natural disasters. These regions often charge higher premiums, but they also may charge more for deductibles related to certain perils.

    Hurricane and wind damage are perils for which many insurance providers will charge a higher deductible. It’s common in the industry for many carriers to charge anywhere from around one to five percent times the insured value of your home—for the deductible.  This is because the damage caused can be so costly.

    Say hypothetically you live in Florida, and wind from a hurricane causes $15,000 in damage to your home. Your insurance carrier charges you 5 percent of the insured value of your home which is $300,000. This means your deductible would be around $15,000. When you factor in the likelihood that following this claim, your premiums will increase, you may as well just pay for the repairs out of pocket. This is an extreme situation, but goes to show how much your region’s level of risk can affect your insurance costs.

How to mitigate the cost of your deductible?

Just like with any other type of insurance, you can always mitigate potential damage by installing safety features in your home. By doing this, you likely won’t file as many claims and won’t be using that deductible as often. In return, insurers might give you a price cut on your policy. Here are some things you can do to reduce your premiums:

  • Repair the wear and tear on your home. Reinforcing your roof and foundation can do wonders to your premium and deductible. You might also update the electrical and plumbing systems, and even retrofit the house as well.

    “I tell my clients: steer clear of small claims if you can, make timely repairs and service your home on a schedule just like you would a car. Make routine inspections of your roof and home grounds so that repairs are caught when affordable,” Folkers said.

  • Up the security. Increasing the security in your home may also affect your rates. For example, living in a higher-crime area may cause you to invest in an at-home security system and fire alarm. If you have a swimming pool you might install a gate to prevent trespassers.
  • Ask for discounts. You never know if there are hidden discounts available until you ask your insurance carrier. You might also be able to get a discount by purchasing multiple policies under the same provider (bundling your policies). You also might get one if you have filed minimal claims, have a great credit score, or are an alumni of a university.
  • Compare Prices. This might seem like a no-brainer, but the way to get the best deal on insurance is to shop around. Fill out our easy online homeowners insurance quotes request form and QuoteWizard will match you with agents who can help you save money.

Exclusions

There are exclusions in homeowners policies for scenarios where a deductible will not be used. For example, if you were to file a liability claim, you wouldn’t need to pay one. You only have to pay one for property damage.

There are also many natural disasters such as floods and earthquakes that aren’t covered by your standard homeowners insurance policy. To learn more about these scenarios, contact your insurance agent.

In the event that a disaster resulted in your home being a total loss, insurers might wave the deductible altogether. Again, check with your carrier for more information.

FREQUENTLY ASKED QUESTIONS

Q: Do I need to pay a deductible if the incident wasn’t my fault?

A: Yes, unfortunately, you must pay it for any sort of property damage claim. The only time you wouldn’t is if you file a liability claim. In all other cases, whoever is at fault, you must pay a deductible before your insurer will pick up the rest.

Q: If my deductible costs more than the repair estimates, is it worth filing a claim?

A: It depends on how significant the damage is. If the repair isn’t going to be that expensive, then it might not be worth filing a claim. Say you have a $1,000 deductible and $1,500 in damages. You would be paying over half of the repair costs, just in the form of the deductible.

The rule of thumb is that if the damages aren’t major, you should pay out of pocket, because when you file a claim, it is likely that your insurance carrier will raise your premiums.

According to Folkers, “Small claims really hurt a homeowner when they go to sell the home because the CLUE [Comprehensive Loss Underwriting Exchange] report will disclose the claims history and a string of small claims can really scare off a potential buyer.”

Q: Will my rates go up if I file too many claims?

A: As stated above, it is very likely that this will be the case. Insurers see homeowners who file a large number of claims as a liability. To compensate, they will often charge these homeowners higher premiums.

Q: What about insuring my valuables?

A: Let’s say you want to insure your grand piano or your antique vase collection. A standard deductible won’t go very far with a claim filed for damage or theft to these items. This is why it’s generally a good idea to purchase a valuable items rider for your homeowners policy.

Q: How much is an average homeowners insurance deductible?

A: According to Zig Tekeste an insurance agent in Torrance, CA, the average homeowners insurance deductible is around .5 to 1 percent of the coverage amount of your home.

Allstate agent, Bruce Kestenbaum says he usually sees a $1,000 deductible plus a 2 percent hurricane deductible on homeowners policies.

Rates can vary, which is why it is always a good idea to speak with a licensed insurance agent.

Q: How much will raising my deductible actually save me?

A: According to Kestenbaum, “Most companies have a base deductible of $500. There is usually a 10% savings to go to a $1,000. If you increase that to a $2,500 deductible, the savings only increase by another 2% so I usually suggest the $1,000 deductible.”

References:

QuoteWizard.com LLC has made every effort to ensure that the information on this site is correct, but we cannot guarantee that it is free of inaccuracies, errors, or omissions. All content and services provided on or through this site are provided "as is" and "as available" for use. QuoteWizard.com LLC makes no representations or warranties of any kind, express or implied, as to the operation of this site or to the information, content, materials, or products included on this site. You expressly agree that your use of this site is at your sole risk.