How much will raising my deductible save me?

How much does increasing deductibles affect premiums?

An Insurance.com rate analysis shows homeowners can trim an average of $512 off their annual rate by jumping to a $2,500 deductible from $500. 

The table below provides average rates by state for various deductibles based on a policy with $300,000 in dwelling coverage and $100,000 in liability, up to a $5,000 deductible for home insurance, which generally results in the lowest rates.

What is a good deductible for home insurance?

The average homeowners insurance deductible, according to insurers like Liberty Mutual and American Family, is $1,000, but there are plenty of options. Is it better to have a high or low deductible for home insurance? That depends.

If you choose a high deductible amount, you can reduce the amount you pay for coverage. In other words, you can reduce your annual premium.

The downside of having a high deductible is that if you file a claim, you will have to pay that high deductible out of pocket. Before you choose a deductible, it is important to ensure you will have that amount of cash on hand should you need to file a claim. If you can't afford the deductible, you'll have a problem if you file a claim.

Still, there's a case to be made for choosing a high deductible to save money. Deductibles are paid only when you file a claim, and the average homeowner makes a claim only once every 10 years, says insurance agent David Shaffer, who has researched insurance company underwriters' studies. Put some money aside over those years in case you need to pay the deductible in the future.

Why does having a higher deductible lower your insurance premiums?

When you choose a higher deductible, you take on more of the financial responsibility in a claim.

Insurance companies also know you'll file fewer claims if you have a high deductible. If your house sustains $3,000 worth of damage, you're not likely to file a claim if your deductible is $2,500. If your deductible is $500, there's a greater chance you'll file a claim to get the balance paid by your insurer.

For more details on how to choose the right deductible for your particular situation, read our guide to selecting home insurance deductibles. Additionally, you can compare rates by ZIP code for 10 coverage levels by using Insurance.com's average home insurance rate tool.

Homeowners insurance claims and deductibles

Shaffer, an independent agent in Walnut Creek, California who helped establish the insurance consumer advocacy group United Policyholders, recommends selecting the highest deductible you can afford. The reason is that most home insurance companies will increase your rates after you file a claim. If you file more than one or two claims in a 10-year period, your premiums are likely to jump, and if you file two in a three-year period they will increase significantly. In some cases, if you file more than one claim under your policy's term, the insurance company will not renew your policy.

So, it makes financial sense to pay for minor damage yourself and not turn to your coverage. An insurance payout for minor damage, say $5,000 or less, isn't going to make up for the increased amount you pay for your policy after filing a claim.

"My message is that consumers need to proactively prevent small losses from happening since they are going to cover them if they do occur, pocket the savings over all of the years they will own a home, and truly view one's home insurance policy as a consumer product to cover major losses," Shaffer says.

Some insurance companies only allow deductibles up to $1,000. In those cases, he recommends shopping for a home insurance policy from a company that allows much higher deductibles.

How does a home insurance deductible work?

Homeowner insurance deductibles are the amount you pay when you file a claim before the insurance company kicks in their portion.

Types of home insurance deductibles

Deductible amounts generally fall into three categories and are specified on the declarations page of your policy.

One is a fixed dollar amount, which is the most common. You select an amount, typically from $500 to $2,500. So, for instance, if your deductible is $1,000, and you file a claim for $5,000, you would pay $1,000 and your insurance company would pay $4,000.

The second deductible type is based on a percentage of the policy's total coverage amount. Percentage-based deductibles are usually - but not always - applied to wind and hail damage. For example, if you have a 1 percent deductible for wind and hail damage and dwelling coverage of $200,000 and file a hail damage claim, you will pay $2,000.

The third is a hybrid of the first two and is called a split deductible. If your policy has a split deductible, the fixed dollar amount deductible applies to most perils, but others, like hurricane and earthquake, will have a percentage-based deductible.

Methodology

Insurance.com commissioned Quadrant Information Services to field home insurance rates from up to 147 companies in all states, including Washington, D.C. Rates were fielded in late 2023 for deductibles ranging from $500 to $5,000 based on a policy with $300,000 in dwelling coverage and $100,000 liability.

FAQ: Home insurance deductibles

What is the best deductible for home insurance?

The best home insurance deductible is the one that balances what you can afford to pay out of pocket if you file a claim with what you want to pay annually for your home insurance. That differs from person to person.

What is the highest deductible for homeowners insurance?

The highest available deductible depends on the company. Some companies only offer flat-rate homeowners insurance deductibles that cap out at $2,500 or up to $5,000. Some offer percentage deductibles that can be a lot higher since they're a percentage of the dwelling coverage.

What are deductibles for natural disasters?

Some types of natural disasters have a separate deductible. Flood and earthquake insurance are separate policies with their own deductibles. In 19 states, insurance companies can add a separate deductible for hurricanes and windstorms, and in some cases there may also be a separate hail deductible. Read your policy for details.

When do you pay the deductible for homeowners insurance?

The home insurance deductible is payable by you only if you file a homeowners insurance claim that gets approved. You will pay the deductible amount toward the repairs and then the insurance company will pay out the rest. If your deductible is $1,000 and you file a $10,000 claim that gets approved, you will pay the $1,000 deductible first and then your insurance company will pay $9,000.

What types of claims does the home insurance deductible apply to?

The homeowners insurance deductible is only applicable to the property coverage portions of your home insurance policy. In addition to property coverages, standard home insurance policies include personal liability coverage and medical payment coverage. However, you will not pay a deductible in liability or medical payment claims.

Helpful home insurance tools and calculators

• Home insurance calculator
• Condo insurance calculator
• Renters insurance calculator
• When to file a home insurance claim

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