How high a deductible can I get on my homeowners insurance? If I boost my deductible, how much can I save on my premiums?
Raising your deductible is a good way to reduce your premiums, and it makes you less likely to file small claims that could result in a rate hike. If your deductible is $500 now, increasing it to $1,000 can lower your premiums by up to 20 percent. Most insurers will let you set a much higher deductible, which is a popular strategy for people who have enough money in emergency funds to cover potential costs.
At Chubb, about half of the wealthiest customers choose a deductible of $10,000 to $50,000. "For homes in Malibu that are valued at $10 million to $25 million, having a $25,000 deductible isn't out of the ordinary at all," says Derek Ross, president of Kulchin Ross Insurance Services, an independent agency in Tarzana, Calif.
The higher the deductible, the bigger the premium savings. Say you have a policy with Fireman's Fund with a $1,000 deductible and a $3,000 annual premium. You'd save about 24 percent by boosting your deductible to $2,500, 37 percent by raising it to $5,000, 47 percent by raising it to $10,000 and 53 percent by raising it to $25,000.
Compare the premium savings with the extra dollar amount at risk to make sure that boosting your deductible is worthwhile.
"If your insurer raises your rate by 10 percent for three to five years after you have a claim, that could easily exceed the amount the insurer paid beyond the deductible," Ross says.
Whatever deductible you choose, keep enough money in an emergency fund to self-insure up to the deductible - or even a few hundred dollars more.
The risk of self-insuring may not be as high as you think. The average person files a homeowners insurance claim only once every eight to 10 years, says Jeanne Salvatore, of the Insurance Information Institute.
You could take the money you save in premiums and add it to your emergency fund each year so that you're prepared when you do have a claim, Ross says. You could also use the extra money to boost your dwelling, property and liability coverage levels by tens of thousands of dollars.
Kimberly Lankford is a contributing editor to Kiplinger's Personal Finance magazine. Send her a question or comment at
moneypower@kiplinger.com. For more on this and similar money topics, go to
tulsaworld.com/kiplinger.
Original Print Headline: High deductibles can create savings
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