What Is a Deductible?
A deductible is the amount you pay out of pocket before insurance kicks in. Higher deductible = lower premium (but more risk).
Example:
You have a $1,000 deductible and $5,000 in damage.
The Deductible Trade-Off
| Deductible | Typical Premium | Annual Savings | Best For |
|---|---|---|---|
| $250 | Highest | — | Those who can't afford surprises |
| $500 | High | $50-100 | Standard choice |
| $1,000 | Moderate | $150-250 | Most common recommendation |
| $2,500 | Lower | $300-500 | Good if you have savings |
🧮 The Math: Is a Higher Deductible Worth It?
The breakeven formula: How many years until premium savings cover the extra risk?
Example Calculation:
Option A: $500 deductible, $1,800/year premium
Option B: $1,000 deductible, $1,600/year premium
Annual savings: $200
Extra risk if you claim: $500
Breakeven: 2.5 years
If you go 2.5+ years without a claim, the higher deductible wins. Most people don't file claims every year, so higher deductibles usually save money over time.
Types of Deductibles
Per-Claim Deductible (Most Common)
You pay the deductible each time you file a claim. Standard for auto and most home insurance.
Percentage Deductible
Common for hurricane/wind damage. 2% of home value = $8,000 deductible on a $400,000 home. Much higher than flat dollar amounts.
Split Deductibles
Different deductibles for different perils. Example: $1,000 for fire/theft, 2% for wind/hail. Check your policy carefully.
Vanishing Deductible
Some insurers (Nationwide, Allstate) reduce your deductible for each year without a claim. Good reward for safe drivers.
How to Choose Your Deductible
âś“ Choose Higher If:
- • You have emergency savings ($1,000+)
- • You rarely file claims
- • You want to minimize premium
- • You can absorb small losses
- • You're a safe driver/homeowner
âś“ Choose Lower If:
- • You can't afford a $1,000+ surprise
- • You live in a high-risk area
- • You have a long commute (more exposure)
- • You file claims more frequently
- • Peace of mind is worth the cost
⚠️ Common Deductible Mistakes
❌ Setting it higher than you can afford
A $2,500 deductible is useless if you can't pay $2,500. Have the cash before choosing high.
❌ Not checking for percentage deductibles
2% wind/hail deductible on a $400K home = $8,000. Many people don't realize this until they file.
❌ Filing small claims
$1,200 damage with $1,000 deductible = $200 payout but a claim on your record. Usually not worth it.
The Bottom Line
$1,000 deductible is the sweet spot for most people. It saves $150-250/year vs. $500 deductible and breaks even in ~2.5 years without a claim. Only go higher ($2,500) if you have solid emergency savings. Check for percentage deductibles on wind/hail/hurricane—they can be shockingly high. And avoid filing small claims that barely exceed your deductible—the rate increase isn't worth the payout.