Is it better to have a high or low deductible for home insurance?

Whether a high or low deductible is better for home insurance depends on your financial circumstances and priorities. A high deductible is ideal for homeowners who want the lowest possible cost of coverage and have enough emergency savings to cover a large out-of-pocket expense after a covered loss. A low deductible is better for those who prefer to pay more for their policy to make sure that repairing sudden damage does not cause a significant financial strain. Essentially, you are choosing between saving money on your recurring insurance bill or saving money during the claims process.

High vs. low deductible: What’s the difference

A homeowners insurance deductible is the portion of a covered loss you agree to pay yourself. When you file a claim for repairs or replacements, your insurance company typically subtracts this amount from your final settlement check.

The main difference between a high vs. low home insurance deductible is how much money you’ll pay out of pocket in the event of an approved claim. Another difference is how your deductible amount will affect the cost of your policy (called your premium). 

To aid in your decision-making, here are several pros and cons of choosing a high or low deductible amount.

Pros and cons of a low deductible

Pros:

• You’ll pay less out of pocket when you have a covered claim. 
• Can be a good option if you live in a high-risk area where expensive claims are likely.
• Ideal when filing smaller claims, like a water leak.

Cons:

• You’ll pay a higher monthly home insurance premium. 
• If you never file claims, you won’t receive cost savings from a low deductible.
• Could still have to pay disaster deductibles, like a hurricane or windstorm deductible.

Pros and cons of a high deductible

Pros:

• Lower monthly home insurance premiums.
• Could be a more affordable option long-term if you file claims infrequently. 
• Might discourage you from filing small claims, which can keep your rate low. 

Cons:

• Higher out-of-pocket costs when you have a covered loss.
• Not ideal for homeowners in areas with a high risk of costly losses, like hurricanes.
• Could cause financial stress if you need to file a claim for a major home repair.

How to choose between high vs. low deductible

Deciding whether a high or low home insurance deductible is better depends on your individual situation. To help you choose, here are a few scenarios when you might pick a high or low deductible:

• You want the cheapest policy price: If you care about getting the lowest possible home insurance premium, pick a high deductible. If you already have a home insurance policy, you can also increase your deductible to reduce your rate. 
• You want to maximize your claim payouts: If you want to pay as little as possible out of pocket in the event of covered damage, go with a low deductible. Your insurance company will cover a larger portion of the cost of repairs.
• You don’t anticipate filing many home insurance claims: If you live in a low-risk area and don’t anticipate filing many home insurance claims, choosing a high deductible could be a good option that saves you money in the long run.
• You live in an area where expensive claims are likely: If you live somewhere that experiences severe weather, like thunderstorms, windstorms, or wildfires, a low deductible can provide some peace of mind in case you have an expensive loss.

How deductibles affect your premium

Deductibles can have a big impact on your home insurance premium. Homeowners insurance policies with high deductibles have lower premiums, whereas policies with low deductibles have higher premiums.

With a low deductible, the insurance company agrees to pay more when you have a covered claim, so it charges more for the coverage. The opposite is also true. With a high deductible, the insurance company has to pay less for claims, so it rewards policyholders with a lower rate. 

If you want to save money on home insurance, one of the most effective ways to reduce your premium is to raise your deductible. Most insurance companies allow policyholders to adjust their deductibles anytime during the policy period, not just during renewal.

An example of the deductible-premium relationship

Here is an example of how a deductible impacts the cost of a policy. Suppose a homeowner with a $500 deductible pays an annual premium of $5,000. Increasing this deductible to $1,000 or $2,000 could potentially reduce their annual cost of coverage by 5%, 10%, or more. 

However, saving on premiums increases your potential out-of-pocket expenses should you need to file a claim for damage resulting from a covered event.

What deductible amount do most homeowners choose?

There’s no single deductible amount that is the most common for homeowners to choose. You should set a deductible that makes the most sense for your personal situation, location, and budget concerns.

For example, if you live in a low-risk weather area and don’t anticipate filing many insurance claims, a deductible of $1,500 or more might be a good option, especially if you want a cheap rate. But if you live in a place that experiences frequent tornadoes, you might want to pick a $500 deductible or lower, which will offer better financial protection in the event of claimable damage. 

Frequently asked questions

Is a $1,000 or $2,500 deductible better?

Whether a $1,000 or $2,500 deductible is better depends on your situation. In terms of cost, a policy with a $2,500 deductible will have a lower premium. But if you want more financial protection in case of a loss, a $1,000 deductible is better because your insurer will pay a larger portion of the claim. 

Does a higher deductible always save money?

A higher deductible will always reduce your monthly premium, but it won’t necessarily help you save money overall. If you choose a high deductible, you’ll pay more out of pocket when you file a claim. If you file multiple claims, it could end up being more expensive to have a high deductible.  

Can I change my deductible mid-term?

Yes, most insurers allow policyholders to change their deductibles in the middle of the policy period. You should contact your home insurance company to make changes to your deductible and get a new premium quote (meaning a policy cost estimate that factors in the deductible adjustment).