What Deductible Should I Carry On My Homeowners Insurance?

Choosing the right deductible for homeowner's insurance varies from person to person, house to house, and place to place. Understanding your homeowner's insurance deductible is simpler than understanding your health insurance deductible. Here's what you need to know: if you file a claim on your homeowner's insurance, the maximum you will pay for your claim is the deductible you carry on your policy. If your home is completely destroyed, you pay your deductible, and the insurance company covers the rest. For example, if you have a $1,000 deductible and it costs $500,000 to rebuild your home, you pay $1,000, and the insurance company pays the remaining $499,000. Here's the kicker: the lower the deductible you carry, the higher your premium (cost of insurance) will be. Conversely, the higher your deductible, the lower your premium.

The insurance industry has changed significantly in the past three years. Back in 2020, property insurance was much cheaper, with rates having increased by about 60%. When coverage was more affordable, I recommended a $1,000 deductible. Those days are behind us. Insurance companies are increasingly exiting states, ceasing to write new business, raising rates, and often requiring that both home and auto policies be with the same company to write home insurance.

Filing claims should be reserved for situations that are catastrophic to your finances. I now recommend most individuals carry $2,500 deductibles to reduce insurance costs and to make insured individuals think twice before filing a claim. If an individual can afford a higher deductible, I encourage raising the deductible. Filing more claims in today's market will result in higher rates, on top of the statewide rate increases already affecting the market. With a claim filed, your rate increase may be 120% versus a 60% increase. Moreover, the claim will appear on your insurance loss report for the next five years. Not to mention, if you file a claim, the company is not obligated to offer a renewal.

To mitigate the increase in price and to help maintain your insurance score, it is best to pay out of pocket for small claims. Consult your insurance agent, discuss with your partner and financial advisor, and decide how much money you can set aside for future claims. This is the best practice in today's changing market.