What Should My Insurance Deductible Be?

By: Lucy Murphy, CISR

Lucy is a licensed property & casualty agent who has been working in the insurance industry for more than 30 years. She has recently earned her CISR designation.

young driver upset after dinging car on poleWe are so glad you asked! This is an important question… one that many people answer once and never stop to revisit as their situations change.

What is an insurance deductible?

An insurance deductible is the amount of money you have to pay from your own pocket before your insurance coverage kicks in. As you probably know, you have a home insurance deductible and several different car insurance deductibles (usually one for “collision” and one for “comprehensive” coverage; there is no deductible for the liability portion of your car insurance).

Deductible amounts typically range between $200 and $2,000. Where do these amounts come from? Who decides on this dollar amount? And what should your deductible be?

Let’s look at some FAQs surrounding these numbers:

Do I get my deductible back if I wasn’t at fault?

You might! When you file a claim, your insurance carrier will likely pay your damages minus your deductible. After they do some investigation, if they determine another party was at fault, they will give you back your deductible, too. This is why it is so important to collect all available info, including witness contacts, at the scene of a collision. Here’s a complete list of what to do after an accident.

Home insurance deductibles work in a similar way. Let’s say your dishwasher suddenly floods your kitchen, and your insurance agrees to pay the damage minus your $1,000 deductible… If your claims adjuster determines that the dishwasher was defective or wasn’t installed correctly in the first place, the insurance company can “subrogate” against the appliance manufacturer or plumber who installed it. If the company is successful in winning its case, your deductible would likely be returned to you!

What’s the average car insurance deductible?

There aren’t any hard statistics on this, but industry sources say a $500 deductible is considered “standard.” There are good reasons to opt for a higher deductible, though…

What’s the average home insurance deductible?

For home insurance, average deductibles range between $500 and $1,000. States with higher average premiums typically have higher deductibles, too.

Is there any advantage to raising my deductible?

Yes, raising your deductible will almost certainly lower your premium—whether it’s your auto, renter’s or homeowner’s policy. Since Massachusetts is the 9th most expensive state for car insurance, that’s good news for lots of MA drivers.

Keep in mind though, savings potential depends on many factors—including your age, your driving record, and your coverage limits. Using state-specific data, some sources estimate that raising a Massachusetts deductible from $250 to $1,000, could save the average person 20 percent on annual car insurance. Raising it from $500 to $1,000 could yield a 14 percent savings. But again, these are just estimates.

When it comes to home insurance, savings can also be significant. This New York Times piece reports that raising a Massachusetts home insurance deductible from $500 to $2,000 could save as much as 20 percent or more.

Ask your local insurance agent to review your savings potential with you: 508.339.2951.

Should I raise my deductible for car/home insurance?

That all depends on you and your family’s financial situation. If you have an emergency fund with enough excess cash available (experts recommend saving up at least two months’ worth of living expenses), you can probably afford to raise your deductible to $1,000 or more. Doing so will definitely lower your monthly insurance bills. And if you don’t have to file a claim for two, three, or four years… you could save a significant amount of money over time. (FYI: the average car owner drives for 8.3 years without submitting a claim. SUV and pickup truck owners have claims roughly every 6.5 years).

Whether or not to raise your deductible also depends on your tolerance for small dings and scratches. If you’re the type of person who values a flawless exterior, and you submit a claim whenever small repairs surface, a higher deductible will mean the cost of those small repairs land fully on your shoulders.

Can I raise my deductible at any time?

Yes. Just like your can change your car insurance policy itself, you can change the terms of a policy at any time. But we recommend re-evaluating this number annually, before your policies renew, along with all the other factors that go into your insurance plan.

Do most car accidents cost more than the deductible?

Yes, but lots of variables come into play when calculating the cost of an average collision claim. In 2016, according to the Insurance Information Institute (III), the average car collision claim totaled $3,435, while the average comprehensive claim totaled $1,748. How much of those totals are you prepared to pay on your own?

Apart from my deductible, how much car insurance should I have?

Great question! Click on the link in the question above. We’ve covered that topic—including Massachusetts’ car insurance requirements and beyond—in an earlier blog.

Are there other ways to save money on insurance?

Yes! We’ve listed some of the most common insurance discounts here. Other options include added safety measures or home updates like an alarm system, an emergency generator, a new roof, new electrical or plumbing systems. As always, we like to remind people that insurance is a very individualized topic. What makes sense for your neighbor won’t necessarily make sense for you.

If you’re looking for ways to lower your insurance bill—for home, renter’s, condo, or vehicle coverage—don’t hesitate to call our expert team: 508.339.2951.