Hopefully, you won't ever need your homeowner's insurance policy. If you do, chances are you'll be responsible for paying a portion of the damage. The portion that you pay is called the "deductible," and deductibles range from $50 to $2,500 and up. The higher your deductible, the lower the premium for the same policy. How much deductible should you have? That depends on your wallet.
The Average -- or Standard -- Deductible
There isn't an average deductible, but there are standard deductibles that insurers use as guidelines for "average" policies. Homeowners and auto insurance, the most common varieties, usually have a $500 deductible. Although some policies may have no or very small deductibles, the premiums are usually very high. They also can be difficult to find. Many consumers elect to have a $1,000 deductible because the premium is lower; they're gambling that they won't have an accident, or that they'll be able to afford repairs totaling less than $1,000.
Hurricanes, Earthquakes, Windstorms and Floods
Special weather events or other natural disasters usually have a separate provision due to their destructive natures. Coastal areas in particular present a high risk of storm damage, and insurers have begun issuing percentage deductibles in the event a storm or natural disaster occurs. Rates range from 1 to 5 percent of the home's insured value.
Percentage deductibles are simple to calculate. If your home is insured for $100,000 and you have a 2 percent hurricane deductible, you are responsible for the first $2,000 worth of damage. You may also have a $500 deductible for events such as fire or theft. However, each insurer's policy is different, and some companies may permit the homeowner to pay a higher premium to get a dollar deductible. Some make percentage deductibles mandatory.
Figuring Your Deductible
The common rule of thumb is to have your deductible match the highest amount you can afford to pay on your own. In other words, if you can't afford more than $250 in repairs to your home, your deductible should equal $250. Consider how much cash and credit you have on hand, and the amount of disposable income you earn on a monthly basis; the more comfortable you are, the higher your deductible can be. However, you should also consider how much risk you're willing to take. If you're risk-averse, your deductible should be lower.
Insurance Savings Tips
Don't be afraid to shop your policy; the same policy may differ by hundreds of dollars. Also, remember that you're insuring the home and its contents, not the land; rebuilding costs less than purchasing the house plus the land. If possible, buy multiple policies from the same insurer, as you'll get a premium discount, and once you've purchased it, stay with the same insurer. Adding security, safety and updated heating, plumbing and electrical systems reduces your premium as well. Ask for other discounts, like professional or retiree plans. Finally, keep your credit in good shape, as many insurers use this score to predict your risk.
- Pueblo: 12 Ways to Lower Your Homeowners Insurance Costs
- Insurance Free FAQ: What Is the Average Deductible on Homeowner Insurance?
- Insurance Institute of America; Hurricane and Windstorm Deductibles; April 2011
- Insurance Institute of America: Deductible
- Coverage.org: Choosing the Right Deductible Amount
- "The New York Times"; Insurance; Why Homeowners Stay With Low Deductibles; Joshua Mills; Nov. 13, 1993
- Farmers: Homeowners Deductible Calculator
- FloodSmart.gov: Residential Coverage Policy Rates for 2011