The question is, just how far should you raise your deductible? Is there a point at which you can set it too high?
That's what a listener of the Clark Howard Podcast recently asked.
How Big Can I Go on My Homeowners Insurance Deductible?
How high can I adjust my homeowners insurance deductible to save money on my monthly premium?
That's what a listener wanted to know on the March 2 podcast episode.
Asked Jay in Florida: "What is the maximum amount you would recommend for a homeowners insurance deductible? I wouldn't make a claim on anything less than $10,000 today as I can afford the cost and I don't want to risk my rate increasing or being dropped altogether. But just how high should I go? $25,000?
"I'm fortunate and have quite a bit in reserves, so I could handle the cost in case of emergency. Trying to balance risk and cost here and it's unlikely I'll file a claim unless there is catastrophic damage."
Jay is right. Raising your deductible is No. 1 on our list of nine easy ways to lower your homeowners insurance. If you accept more risk before the burden falls on the insurance company, you'll often get rewarded with cheaper monthly premiums.
You can also consider how much homeowners insurance you need, although Clark advises erring on the side of caution.
It's important to consider how much money you have in your emergency fund before you get too crazy. You don't want to have damage to your home that isn't covered by insurance with no money to pay for it.
Is There a Limit to the Monthly Premium Savings I Can Generate by Raising My Deductible?
If you’re in Jay’s position and are financially established, raising your deductible to save on your monthly premium is a sound strategy.
There are two major limiting factors.
"If you have a mortgage, your mortgage company will tell you what the maximum deductible is you're allowed to have before they do something called forced-placed insurance," Clark says. "Which is unbelievably horrible."
In other words, if you’re paying a mortgage, the company supporting your loan will essentially enforce just how high your homeowners insurance deductible can be.
No mortgage? Going from a $500 deductible to a $10,000 deductible can save you a lot of money. But at some point, the amount of money you save on your monthly premium will become negligible.
“What you can do is from your insurer you can get quotes for different levels of deductible,” Clark says.
“But if you find that there’s a break point where going higher doesn’t really save you any money, then stick at that as your deductible. Could be $10,000, $25,000, $50,000, something like that.”
Once you find that level, stick to it. Because if you’re forced into a catastrophic claim, you’re at least limiting your out-of-pocket obligations. Potentially by tens of thousands of dollars.
The Florida Problem: Use It and Lose It When It Comes to Homeowners Insurance
Those of us who live in the Sunshine State enjoy access to beaches, Disney and Universal Studios, palm trees and nearly year-round summer.
One thing we don’t enjoy is a good homeowners insurance situation.
Hurricane Ian, the costliest storm in Florida's history, caused an estimated $113 billion in damage. That pushed an already-tenuous situation into dire territory.
Homeowners insurance companies are outright leaving the state. Many of them are unable to see a viable business path, especially when it comes to homes on the Gulf of Mexico.
The Florida state legislature may have to bail out residents if there’s another catastrophic major hurricane in the upcoming years, Clark says.
If you make any significant claim on your Florida homeowners insurance at this point, chances are your insurance company will drop you.
“Jay, this is a dilemma facing so many Floridians. The risk to you with your homeowner’s insurance – obviously in Florida, use it and lose it,” Clark says.
“And so having as a homeowner if you have the resources, an extremely high deductible is smart. You don’t want to make small claims. What a mess for Floridians.”
Final Thoughts
Raising your homeowners insurance deductible can save you major money on your homeowners insurance premiums whether or not you live in Florida.
Many people have seen their dollars stretched thin in the last 25 months due to persistently high inflation. Home prices, and everything associated, skyrocketed at the end of 2021.
Even though the market has moderated somewhat, your homeowners insurance premiums may have spiked. Or you may just be looking for a way to save a few extra bucks.
Just make sure that, if you have a mortgage, you don’t break the terms of your agreement and get hurled into forced-placed insurance.
If you don’t have a mortgage, use common sense. Premium decreases flatten out at some point. If jumping from $10,000 to $25,000 on your deductible saves just a few dollars a month on your premium, it may not be worth it.
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