If you own a home and car, having insurance might be an integral part of your financial plan. With the right coverage for your needs, you’re more likely to be able to get back on your feet after a covered claim without fully devastating your finances.


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Quick Facts
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Two Thirds
2 out of 3 homes
are underinsured
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1 out of every 20
insured homes makes a claim each year
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100% of homes
need insurance before getting a mortgage
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However, keep in mind that you’ll still need to pay out something too — your deductible amount. When choosing your insurance deductible, make sure it’s an amount you can afford and that it’s accounted for in your emergency fund. A 2022 Bankrate study found that 58 percent of Americans are uncomfortable with the amount of their emergency funds, with 75 percent in this group either having no savings or not enough to cover three months’ of living expenses.

Dealing with a claim, whether it’s a small fender bender of a major wildfire, can be a tumultuous experience. But if you’ve made the right preparations and chosen a deductible limit within your budget, you can bounce back without letting your finances take a major hit.

Prepping for the financial impact

To make sure a disaster doesn’t ruin your financial wellness, let’s look into how you can best understand your deductible and be ready to pay it.

Understanding how your deductible works

The deductible on an insurance policy is the amount that you’re responsible for after a covered loss. Whether it’s repairing your car after an accident or rebuilding your home after a fire, you’ll first pay your deductible, before the insurance company pays the rest, up to the covered limit of your home or auto insurance policy.

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.

Auto insurance deductibles

Car insurance deductibles come into play if you have comprehensive and collision coverage on your car insurance. Having both of these coverage gives you what’s considered a full coverage car insurance policy.

While collision coverage insures your car if it’s involved in an accident, comprehensive coverage insures your car after non-collision accidents. This includes a tree falling onto your vehicle after a storm, or water damage after a flood. When it comes to preparing for a natural disaster, it’s important to know what your comprehensive deductible is so that it’s part of your emergency budget.

Renters and homeowners insurance deductibles

When it comes to property insurance, like 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. If you live in a hurricane-prone area, your policy might include a separate wind and hail deductibles. This is typically a percentage of your home insurance’s dwelling coverage amount.

No matter the incident, you’ll need to be able to pay your deductible to have your home insurance coverage kick in. This may also need to happen quickly, as it’s not just rebuilding your home that’s important — if your home is uninhabitable, you may need to access your home insurance’s loss of use coverage to pay for a place to stay until you can move back into your home.

Choosing the right deductible

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. While the former might be true for home and car insurance, the latter isn’t — because you get to decide your deductible amount.

There’s a tradeoff here, of course. A higher deductible will mean lower premiums (the amount you pay monthly for your insurance). Still, though, it’s critical to make sure you don’t carry a higher deductible than you could pay. All too many people may already be in this situation — that same Bankrate survey found that 34% of Americans had less emergency savings in 2022 compared to 2021, and that 10% have no savings at all.

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.

Take the time to carefully review your insurance policies and consider your deductibles. If any are at a dollar amount you couldn’t comfortably pay in an emergency, check with your insurance provider to see what solutions are available.

The bottom line

When you start building your emergency budget, don’t forget to include your insurance deductibles. Take the time to go through your insurance policy declarations and see what your different deductibles are. If your deductible is too high, work with your insurer to change it. A lower deductible will mean a higher premium, but it’s well worth it to know a disaster wouldn’t financially wreck you.

On top of this, don’t forget that you can take other disaster prevention steps. Ready.gov has tips to help you prepare for the natural disasters that are most likely to affect your area.