What's the Right Deductible for My Home Insurance?

Choosing the right deductible on your homeowners insurance is important for your peace of mind and, since all homeowners policies have deductibles attached to them, this is a decision you'll have to make when you take out your coverage. A deductible is the amount of money that you're basically willing to risk in a form of self-insurance. It's the amount that will come out of your pocket in the event that you make a claim against your policy, before your insurer kicks in their portion. If, for example, you have a $500 deductible and you make a claim amounting to $1500, you would only receive $1000 from your insurer, assuming they pay the claim in full. You don't actually write them a check for your $500 portion – they merely deduct that amount from their payout.

Choosing Your Homeowners Insurance Deductible

Insurance companies know that the higher your deductible amount, the less likely you are to submit small claims to them, since these claim amounts will often be less than your deductible amount. In one respect, this will work in your favor, since frequent claims can often trigger a rise in your premium rates or even cause the insurer to drop your policy altogether.

The main reason for choosing higher deductibles is to save money on your premium payments, since higher deductibles translate into lower rates. The other side of the coin, however, is that one single large claim could wipe out your savings if your deductible is set at $5000 or $10,000. Insurance companies typically offer deductible amounts of $250, $500, $1000 or higher. For you, it's a balancing act of how much you can save in monthly premium payments versus your appetite for the risk of taking a big hit in the event of a claim.

Not All Claims Are Advisable

If you choose a lower deductible like $250 and you suffer a minimal loss such as a broken picture window that costs $350 to replace, it might not be worth it to make a claim for such a small amount, since any claim counts as a mark against you in the eyes of the insurer. Choose a deductible amount with which you're comfortable, take the money you save in premium dollars by not choosing a minimum deductible and stick it in your emergency fund. You should come out ahead, still knowing you're covered for any major loss.