What deductible should you choose for your homeowners insurance?

By Sabrina Karl

No smart homeowner would risk leaving their home uninsured, and if you have a mortgage, your lender will absolutely require homeowners coverage. Still, plenty of savvy homeowners find themselves scratching their heads when it comes to deciding an important element of their policy: the deductible.


In both health and homeowners insurance, deductibles function the same way: Anytime you need or want your insurance company to foot the bill, the deductible is a specified amount you are first required to cover. By paying your share, the insurance company will then cover the balance.


Most homeowners policies stipulate either a dollar amount or a percentage deductible. In the dollar amount scenario, deductibles of $500, $1,000 or $1,500 are typically offered, though most insurance companies will accommodate higher dollar amounts, whether it’s $2,500 or $10,000, or even $100,000 for owners of multi-million dollar homes.


The other option is a percentage deductible based on your home’s value. For example, if your home is worth $200,000 and you choose a 0.5 percent deductible, you’d be on the hook for $1,000 when filing a claim.


So how to choose? Of course everyone would like to pay less to repair damage caused by a kitchen fire or a fallen tree. But the lower the deductible you choose, the higher your annual premium. That’s because insurance companies reward those choosing higher deductibles by charging them lower prices, since it reduces the small claims they’ll have to process.


So what’s important when policy shopping is to assess the premiums associated with different deductibles, and calculate how much you’d save over a number of years and how much you could cover out-of-pocket. It’s a balancing act, with unknowns you can’t predict, but the higher the deductible you can handle, the more you stand to gain over time with lower premiums.