Home insurance customers are raising their deductibles to upwards of $5,000 or even $10,000 to offset rising premiums, according to industry reports.
High-deductible policies can save customers hundreds of dollars per year in premiums, but they can prove painful if and when the homeowner files a claim: The deductible is the amount an owner must pay out of pocket before the insurance company covers rest.
Most insurance customers have deductibles between $1,000 and $2,500, but the share of policies with deductibles in that range is shrinking, Guaranteed Rate Insurance, a national brokerage, found in a recent recent report.
“This segment has decreased by 17% over the past five years in favor of even higher deductibles,” the report said. “Deductibles in the range of $5,000 to $10,000 have seen a 49% increase.”
The shift to higher deductibles comes as the average annual home insurance rate has increased more than 20% from 2021 to 2023, according to Insurify, an online marketplace.
The average insurance premium is expected to rise another 6% this year to about $2,500. The trend toward higher deductibles will likely continue because it allows owners to pay lower premiums.
Unexpected increases in home insurance prices can be a major issue for homeowners, especially in states like Florida and Louisiana where costs are already elevated due to weather risks. The average annual home insurance premium is $10,966 in Florida and $6,354 in Louisiana.
Realtor.com said in a new report that some homebuyers are actually backing out of deals because they are getting sticker shock at their insurance quotes. Other potential buyers are avoiding housing markets with high insurance prices.
“Homes might sit on the market for longer, prices are being forced down, and deals are falling apart,” the report said. “And it’s expected to only get worse as communities continue to grapple with increasing climate risks and insurance premiums.”
While increasing your deductible can be risky, it’s a better option than skipping insurance, underinsuring a home or letting a policy lapse, experts say.
Insurance deductibles rise as home insurance prices soar
Lee Maliniak, chief product officer at Matic, says the insurance firm’s data also shows a spike in higher deductible policies as customers make adjustments to keep their premiums within budget.
“What’s happening is that insurance rates are rising, consumers are under pressure, and so they’re increasing deductibles to try and combat the price increase,” Maliniak says.
In some cases, homeowners insurance companies will guide customers toward higher deductibles at renewal or enact an automatic increase for the next coverage period.
Increasing your deductible can be a smart financial decision, but it’s risky for financially-stressed customers who are increasing their deductibles out of necessity.
“If there is a situation where you have to make a claim, you don’t want to find yourself with a deductible so high that you can’t pay it,” Maliniak says.
For customers who have enough money in an emergency funds to handle it, experts often advise that the savings that come with a higher deductible are worth it. By switching from a $500 deductible policy to a $2,500 deductible, customers save more than $500 per year on average on premiums, according to Insurance.com.
If you have a stretch of bad luck and need to file multiple claims in a short period, you’ll have pay a new deductible with each incident. That can completely negate the premium savings of a higher deductible.
But home insurance claims are pretty rare: Customers only file them about once every 10 years, on average, and people will often avoid filing smaller claims because claims can lead to higher premiums.
If several years go by when you don’t need to file any home insurance claims, these savings will start to add up.
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