There are lots of choices when it comes to insurance. One of the biggest is how to choose a deductible.
A deductible is the amount you choose to pay before insurance kicks in. It can be as little as $100 and as high $10,000 (with many options in between).
When it comes to your car, deductibles typically only apply to collision and comprehensive coverage (both of which are optional). For your house, it typically only applies to property damage. Liability coverage (which covers you in the event you’re legally responsible for harming someone or their property) typically does not have a deductible. That’s because insurance companies want you to report your liability claim ASAP, even if it’s small.
Generally, there is a direct relationship between the deductible you choose and how much your premium costs. That means if you choose a lower deductible, you can expect to pay more in premium.
Many agents suggest choosing a deductible somewhere in the middle based on what you can afford—and to use insurance to cover true financial loss instead of small claims. More often than not, submitting more claims leads to premium hikes.
In the end, much of it comes down to your tolerance for risk and your financial situation. If being on the line for a larger amount makes you nervous or you’re not sure if you could cover your deductible, consider a lower deductible.
Whether it’s $100 or $10,000, you should have an emergency fund with enough money in it to cover the deductible.
A few final tips on how to choose a deductible
Here are three more things to keep in mind:
- Be aware of percentage deductibles. Typically used in homeowners insurance, percentage deductibles are a certain percentage of your homeowner’s dwelling limit. This can lead to sticker shock since percentage deductibles tend to cost more and be more unpredictable than named deductibles. They can also be different from your overall deductible based on the type of loss like damage from wind and hail, and hurricanes
- Consider different deductibles for different types of perils. Some insurance companies give you the option of choosing a different deductible for different perils like hurricanes, theft and fire
- Check with lenders to see if you need a minimum deductible. If you have a mortgage, it’s possible your lender may stipulate that your deductible not exceed a certain amount.
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I thought that the advice that you posted about things I should keep in mind when choosing homeowners insurance was really helpful. Being aware of percent deductibles seems like a tip that I should keep in mind now that I’m looking for a homeowners insurance plan. I didn’t realize that percent deductibles can cost more and be more unpredictable than named deductibles, so I should remember that when looking into different insurance plans.
Thanks for the tip to choose a deductible somewhere in the middle based on what you can afford. More specifically, you mention that submitting claims leads to premium hikes. I think it’s important to choose homeowner’s insurance that comes from a company that you have other insurance plans with since they most often will give you a group discount.
I didn’t know that the deductible for your homeowners insurance typically only applies to properly damage. I’m very paranoid and I like to be very prepared, so I typically say the more coverage the better. I will have to look for a homeowners insurance policy that gives me the most coverage so that no matter happens, I am not at risk.
The article suggests that many agents suggest choosing a deductible somewhere in the middle based on what you can afford. It seems like finding the right balance between coverage and premiums could be difficult when selecting a homeowner’s insurance plan. I’ll probably get some advice from an agent when it comes time for me to pick my policy later this year.
My wife and I are in the process of buying our first home. I have been looking at homeowner’s insurance options, but I don’t know how much of a deductible I should choose. I didn’t realize how important it is to choose a deductible that you have enough emergency savings to cover. I’ll remember that as I continue my search.
My husband and I are looking to buy a home. We want to make sure we understand how to pick the right homeowners insurance and deductible. I didn’t realize those percentage deductibles are different from the overall deductible based on the type of loss. Thanks for sharing this information!
I agree that you need to consider the option of differing deductibles when choosing home insurance. It sounds logical to want to have different deductibles when different disasters occur. My brother is looking for new home insurance so he’ll have to consider a policy with differing deductibles.
My wife and I have been looking for some home insurance options and I think that being able to be aware of percentage deductibles that could cost us more like you talk about would be good for us. I would hate to have to pay higher deductibles with our home insurance than we should need to, so I’ll be sure to stay away from that. We’ll have to keep shopping around for good home insurance and see what we can find! Wish us luck!
I didn’t realize that choosing a deductible on your homeowners insurance claim can help you make sure you can afford the price, but also keep a lower monthly premium. My sister will be in the market for her first home soon. Hopefully, this info can help her choose a policy that is affordable now and when she needs to file a claim.
My husband and I are recently married and looking to buy our first home. With our home, we want to make sure we choose the right homeowner’s insurance policy. Like you said, there is generally a direct relationship between the deductible we choose and our premium costs, so we will have to determine our tolerance for risk.
I agree that you want to consider what kind of deductible you have when choosing home insurance. It would be good to consider this because it would help you plan your budget. My husband and I are looking for home insurance, so we’ll have to consider the deductible first.
These are some pretty great tips; after all, if you’ve never bought a home before, you might have some trouble choosing the right deductible. As the article points out though, you’ll likely want to go for something more in the middles. After all, it is important to base the deductible that you choose on how much you can afford.
I liked what you said about having an emergency fund so that you have enough money to cover your deductible. My husband and I were just discussing our emergency fund the other day. We’ll definitely need to save some more money to cover our deductible, but I think that it will be doable. Thank you for your advice!
Thank you for pointing out that generally there is a relation to your deductible and how much your premium costs. My husband and I just bought a new house and we are needing to get insurance for it. I’ll have to do some research and find the best company that can help us get the right insurance for us.
Thank you for sharing your unique insights and perspectives on this topic.