If you’ve shopped for a health insurance or car insurance policy, you know about deductibles—the money you pay out of pocket before your coverage kicks in. This could be represented as a dollar amount or a percentage.
If you file a claim on your home insurance, you’ll pay the deductible amount before your insurer covers the rest of the cost. Deductibles don’t apply to liability claims, only to property and personal belongings.
You’ll choose your deductible amount when buying a policy. Typically these amounts range from $500 to $2,500, or they may be a percentage (around 1%-2%) of your home’s value. If you’re tacking on extra coverage for perils like earthquakes and hurricanes, these policies may have separate, larger deductibles.
The higher the deductible, the lower the premium—the amount you pay every month—and vice versa.
Should you spring for a higher deductible or go with a lower one? That depends somewhat on how likely you think you are to file a claim. A high deductible saves you money month to month, and if you’re lucky enough never to make a claim on your policy, you’ll save a ton in the long term. But you’ll pay a lot more if you do need to repair or replace anything. An emergency home repairs fund can help make up the difference.
Lower deductibles cost more on a regular basis since you’re paying high premiums. The upside is that your insurance will make a bigger contribution if you do file a claim. This could be a good choice if you think you’ll face an excessively expensive peril covered by your insurance, like fire, water damage, or freezing pipes. But if your risk is relatively low, a high-deductible policy may lead to more savings.