Home and auto insurance can help you bounce back after experiencing a covered financial loss, but an integral part of this plan is the ability to pay your insurance deductibles. Bankrate’s annual emergency savings report found that 57 percent of U.S. adults are uncomfortable with the amount of emergency savings they currently have, with 56 percent reporting that they would not pay an emergency expense of $1,000 or more from their savings account. Given that auto and home insurance deductibles usually range from $500-$2,500, many Americans could face a serious challenge if they needed to file a claim.

Increasing your deductibles to lower your insurance premiums may save you money in the short term, but it can put you in a precarious financial situation if you need to submit an insurance claim. Along with finding an insurance company that offers the coverage you need with an affordable premium, choosing appropriate deductibles and putting emergency money aside can help ensure you can afford to use your insurance if you need to.

How much do I need to save to pay my deductible?

Auto, home and renters insurance have various insurance deductibles ranging from as low as $50 to over $5,000 depending on the state and coverage options. Deductibles in the $500-$1,000 range tend to be the most popular but keep in mind that you may have to file a claim for your car and your home. In cases of extreme weather, it is common to have damage to your dwelling or personal property and your vehicle, meaning you will likely need to have the combined total of your property and auto deductibles available to you at the time of a loss.

To make sure you’re prepared to pay your deductible, let’s look into how deductibles work for some common types of insurance: home, renters and auto.

Understanding how your deductible works

Insurance policies are a way for policyholders to offset the risk of financial loss. An insurance deductible allows policyholders to control how much risk they retain, while insurance companies assume the rest of the financial burden from covered losses.

When an insurance claim is filed, you will receive the appropriate claim amount minus the deductible. Depending on the type of policy, the claim check can be written directly to the policyholder, to the mortgage company or collision repair shop, or to both. It will be your responsibility to pay the deductible directly to the repair shop or contractor, and not having the money to do so can delay or stop the repairs.

It’s also important to know that your property and auto insurance deductibles work on a per-incident basis. While you can meet your health insurance deductible on an annual basis, you’ll need to pay your home, renters or auto deductible with each claim.

Could you comfortably do that? To find out, pull out your insurance policies, whether you have paper copies or you view your policies online. Locate your deductibles, then identify what will be required for a claim.

The phrase ‘pay your deductible’ can be a little misleading. In most cases, after you file a claim, your insurer pays your claim to you or the repair shop or contractor with your deductible already taken out. Instead of thinking of your deductible as a separate bill you need to pay, it helps to think of it instead as the amount you’ll need to go without from your insurance provider. — Natalie Todoroff, Bankrate insurance analyst

Auto insurance deductibles

Car insurance deductibles typically come into play if you have comprehensive and collision coverage. These coverage types usually make up a full coverage car insurance policy. However, other coverage types also have deductibles, such as personal injury protection (PIP) and uninsured motorist property damage. Each one of these coverage types has separate deductibles, and you could be responsible for more than one deductible if you are involved in a car accident.

While collision coverage pays to repair your vehicle up to its actual cash value (ACV) when damaged in a car crash, comprehensive coverage pays to repair your car from other sources of damage. Some insurance companies even refer to this particular car insurance coverage as “other than collision” coverage. This includes damage from fire, wind, hail, flooding, falling objects and colliding with an animal. When it comes to preparing for a natural disaster, it’s important to know what your comprehensive deductible is to include that in your emergency budget.

Renters and homeowners insurance deductibles

Looking at property insurance, including homeowners, condominium and renters policies, you’ll usually only have to choose one deductible amount. That’s what you’ll pay after a covered incident to repair or rebuild your home or replace your belongings. The most common home insurance deductibles are $500 or $1,000, though higher options may be available.

If you live in a hurricane-prone area, your policy might include separate wind and hail deductibles. This is typically a percentage of your home insurance’s dwelling coverage amount. Standard options are 1, 2, 5 and sometimes 10 percent. When considering a higher wind deductible, ask your insurance agent for home insurance quotes with various deductible options to better understand what the price difference may be.

Renters insurance pays for your personal property, loss of use and personal liability, but the deductible only applies to personal property. You can start replacing and repairing your items once you receive your claims check minus the deductible amount. However, when a home is being fixed or rebuilt, you will need to have the missing deductible amount to pay the contractor — not having access to the funds could delay or stop repairs.

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How will my deductible affect my premium?
When choosing your deductibles, keep in mind that the amount you select will influence your premium. A high deductible signals that you are assuming more risk because when a claim is filed, the insurance company will have to pay less money. For this reason, a high deductible translates to a lower premium and vice versa.

Here is how different deductible options impact the average cost of a homeowners insurance policy with $250,000 in dwelling coverage:

  • $1,000: $1,687 per year
  • $2,000 deductible: $1,588 per year — 4 percent decrease from $1,000 deductible
  • $5,000 deductible: $1,382 per year — 16 percent decrease from $1,000 deductible

Note that the impact on your premium can vary based on the policy type and even the coverage type. Choosing a higher collision deductible may lower your premium more than choosing a higher comprehensive deductible. This is why most experts recommend comparing personalized quotes before adjusting your deductibles.

How to choose the right deductibles for your budget

When it comes to budgeting for emergencies, most of us won’t be able to guess when it’ll happen or how much it’ll cost. However, when it comes to auto and property insurance, we do know how much it will cost— the amount of the deductible you selected.

There is a tradeoff to keep in mind when choosing your deductible. A higher deductible will mean lower premiums, but experts recommend keeping your deductible low enough that you could pay it comfortably out of pocket with little notice.

When choosing your deductibles, it may be helpful to consider the following questions:

  • What are my deductible options? Look at the range of deductibles your carrier offers and consider how each one potentially affects your budget.
  • When would I have to pay this deductible? Consider the coverage type and when you would need to use it. If you had to pay multiple deductibles at the same time, how would that impact your savings?
  • How does each deductible impact my premium? Compare personalized quotes to see how each deductible option affects your premium.

Bankrate’s survey found that 22 percent of U.S. adults have no emergency savings. While your insurance deductibles may be low on your list of financial priorities, damage to your home or vehicle could be devastating. In the U.S., 88.4 percent of full-time employees commute to work. One accident where you can’t pay to have your car repaired in time to get to work could be the first step in a chain reaction that wreaks havoc on your personal finances. In other words, it might be worth paying a small extra amount each month to get your deductible to a point where you know you have the money in hand to cover it.

Methodology

Bankrate utilizes Quadrant Information Services to analyze 2024 current rates for ZIP codes and carriers in all 50 states and Washington, D.C. Quoted rates are based on 40-year-old male and female homeowners with a clean claim history, good credit and the following coverage limits:

  • Coverage A, Dwelling: $250,000
  • Coverage B, Other Structures: $25,000
  • Coverage C, Personal Property: $125,000
  • Coverage D, Loss of Use: $50,000
  • Coverage E, Liability: $300,000
  • Coverage F, Medical Payments: $1,000

The homeowners also have a $1,000 deductible and a separate wind and hail deductible (if required).

These are sample rates and should be used for comparative purposes only. Your quotes will differ.