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Cut Your Homeowners Insurance Premiums With 1 Simple Step

A higher deductible can reduce your rates by as much as 39%.

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I have a $500 deductible on my homeowners insurance. How much money can I save in premiums by raising the deductible? Is the premium savings worth it if I have a claim?

See Also: Are You Covered?

A study by InsuranceQuotes.com recently found that raising your deductible from $500 to $1,000 reduces premiums by an average of 6.5%; raising it from $500 to $2,000 reduces premiums by an average of 16%; and raising it from $500 to $5,000 reduces premiums by an average of 28%.

The study also found that the savings can vary a lot by state. In North Carolina, for example, boosting your deductible from $500 to $2,000 saves an average of 39%. The average savings was 27% in Rhode Island and 23% in Pennsylvania but less than 7% in Texas, Indiana and Hawaii. See InsuranceQuotes.com for the full list.

Here’s another benefit to boosting your deductible: Having a higher deductible prevents you from filing small claims, which could cause your insurer to boost your rate or drop your coverage, says Derek Ross, president of Kulchin Ross Insurance Services, in Tarzana, Calif. Even if you make a claim that’s slightly higher than your deductible, a rate hike could mean you end up paying more than if you had covered the cost yourself.

Ask your insurer how much you’d save by boosting your deductible, and then decide whether the lower premiums are worth the extra risk. You may decide you can afford to cover damages up to $2,000 on your own. If the premium savings is enough to make the extra risk worthwhile, it may make sense to raise your deductible from $500 to $2,000. Similarly, if you can afford to pay $5,000 out of pocket, you might raise the deductible to that amount if the premium savings are significant.

It’s a good idea to set aside enough money in an emergency fund to cover the higher deductible, so the money is easily available if you do suffer damage. You can take some of the money you saved in premiums and put it in your emergency fund.

See Also: 8 Ways to Protect Your Home and Finances from Hurricanes

Got a question? Ask Kim at askkim@kiplinger.com.