Owning a home comes with a multitude of ups and downs. When it comes to the downs, many homeowners find value in what’s often a mandatory monthly bill – their homeowners insurance.
Despite the necessity of this type of coverage, many homeowners struggle to understand their policies’ options and aren’t sure how to make the right choice for their needs. That’s particularly true when it comes to their homeowners insurance deductible.
On this page:
- Homeowners Insurance Deductible Explained
- Average Homeowners Insurance Deductible
- Choosing the Right Homeowners Insurance Deductible
- How Your Deductible Impacts Your Premium
Homeowners Insurance Deductible Explained
When shopping around for a homeowners insurance policy, you’ll likely focus on two numbers in particular for costs: the premium and the deductible. The premium is the monthly amount you pay to maintain coverage. The deductible is the amount you would pay when you need to file a claim for property damage.
Deductibles are an essential part in determining two very important pieces of your homeowners insurance bill, as the deductible you choose will directly impact your monthly expenses and indicate how much you need to be able to pay upfront at any given time if you make a claim.
Many homeowners find that their deductible is a flat rate ($500, $1,000, $2,000, and so on); however, some insurance companies also offer a percentage-based option (percentage of your home value) or a combination of the two. In this article, we’ll focus on the flat-rate option.
Average Homeowners Insurance Deductible
Homeowners insurance premiums vary from state to state. For example, the average policy in Florida is $3,575 annually, which is over $2,300 more than the national average ($1,228), according to Insurance.com. The average cost to insure a home in California is $793 annually, and the average policy in Pennsylvania is $801 annually, both significantly lower than Florida.
Despite the fluctuation in premiums, the average homeowners insurance deductible seems to remain the same, as many homeowners, including those in Florida, Pennsylvania, and California, choose a $1,000 deductible, though $500 is still a popular choice.
While many choose to pay that average deductible, that’s not the only option available to homeowners. Many have the ability to choose (and do) much higher deductibles. Some make a small leap, to $2,000 or $2,500, to save on their premium, but others may go well beyond that, with some climbing to a modest $5,000 all the way up to $100,000.
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Choosing the Right Homeowners Insurance Deductible
Choosing the right policy can be complicated, but there are a few considerations that can help you make the best decision for your unique circumstances.
- Consider your current financial situation: An insurance policy is meant to protect you in the case of the unexpected, and even though you can’t see into the future, you should pick a deductible that you can conceivably cover in your current financial situation.
- Analyze locational concerns: Are you living in an area where natural disasters are frequent? Are robberies a common occurrence in your neighborhood? Then you may want to consider a higher deductible, as many insurance providers will increase premiums for candidates with dwellings that are considered to be in high-risk areas. If you can afford to do so, this can make your monthly payment more affordable.
- Do the math: In some cases, raising your deductible may have a significant impact on your monthly bills. In others, not so much. Work with your current or potential insurance companies to determine the savings provided by increasing your deductible, and then factor those savings into your decision.
How Your Deductible Impacts Your Premium
Your deductible and homeowners insurance premium are dependent on each other; typically, when your deductible is lower, your home insurance premium is higher and vice versa. This is largely because policyholders with lower deductibles may cost an insurance company more in the long run.
Take, for example, two policyholders – one with a $500 deductible and one with a $1,000 deductible. If both policyholders incur damage that will cost $900 to repair, the policyholder with the higher premium won’t make a claim, as the repair is lower than the deductible. However, the other policyholder can make a claim that would result in $400 of compensation by the insurance provider.
With that in mind, it’s easy to see why most insurance will decrease the premium amount for policyholders who choose higher deductibles and therefore potentially shoulder a larger portion of the expenses.
Because of the relationship between your premium and deductible, many homeowners can realize real savings when they increase their deductible. Below is a brief example of how much homeowners can save when they increase their deductible, with each cell representing an increase from a $500 deductible to the one listed at the top of the column.
|$500 – $1,000||$500 – $1,500||$500 – $2,000||$500 – $2,500|
|Florida||$3,838||263 (6.8%)||323 (8.4%)||592 (15.4%)||647 (16.9%)|
|Kansas||$2,142||203 (9.5%)||340 (15.9%)||489 (22.9%)||585 (27.3%)|
|Pennsylvania||$891||90 (10.1%)||148 (16.6%)||194 (21.8%)||220 (24.7%)|
|California||$896||103 (11.5%)||133 (14.8%)||215 (24%)||221 (24.7)|
|Oklahoma||$2,851||200 (7%)||$268 (9.4%)||372 (13%)||520 (18.2%)|
*Stats and savings are taken from Insurance.com
As you can see, even though raising your deductible does lower your premium, the amount saved also fluctuates by state, making the decision unique to every state as well as every homeowner.
A homeowners insurance deductible is an essential part of your policy, but the deductible you choose depends on a variety of factors, including your current financial situation, your home location, and the amount of money you can save by increasing your policy.
Always make it a point to shop around and get quotes that cover multiple deductibles. This can help you make the best decision for your current and future financial needs. Already have an insurance policy? Work closely with your agent to determine if your current deductible is the best option or you.