Why Do Homeowner Insurance Deductibles Vary by State?

A low deductible, lets use $500 as an example makes it much more likely that a homeowner will make a claim for $1,000 – $2,500 worth of damage. A homeowner carrying a $2,000 deductible on the other hand would most likely pay for the damage out of pocket instead of filing a claim.

Experts have been saying for years that one of the best ways to save money on your homeowners insurance is to raise your deductible.

A new study commissioned by InsuranceQuotes.com confirms this advice, but the savings can vary dramatically depending on what state you call home.

The study used a hypothetical two-story family home, which was insured for $140,000 and investigated what affect increasing the deductible on the home had on the premium.

Currently, the average homeowners premium in the U.S. is $1,034 according to the National Association of Insurance Commissioners (NAIC).

While raising your deductible may seem like a no-brainer it is important to remember that if you have to file a claim at some point, you will be responsible for the higher deductible so make sure that you have that money tucked away somewhere or can get it in a hurry.

Why insurers care about deductibles

Insurers rely on statistics and statistics show that the higher the deductible, the less likely a homeowner is to make a claim. Homeowners with lower deductibles tend to make smaller, more frequent claims. The more claims a homeowner makes, the more expensive they are to insure.

According to experts, the majority of homeowner claims are not a total-loss claim, as when a house burns down or is destroyed by other natural disasters, but for smaller claims such as smoke or water damage.

A low deductible, lets use $500 as an example makes it much more likely that a homeowner will make a claim for $1,000 – $2,500 worth of damage. A homeowner carrying a $2,000 deductible on the other hand would most likely pay for the damage out of pocket instead of filing a claim.

The State You Live in Matters

How much you save by raising your deductible will vary by what state you live in according to the study.

North Carolina was the big winner with an average savings of 25 percent when a homeowner doubled their deductible from $500 to $1,000. North Carolina managed the highest savings percentage in all four measured categories.

Savings rates could vary dramatically depending on how much (or little) the deductible was raised. As an example, Oklahoma only saw savings of 2.83 percent when the deductible was raised to $1,000 from $500 but saw the second biggest savings of all the states when it was raised up to $5,000.
Florida was another anomaly. The Sunshine State has the highest average homeowners insurance cost in all 50 states according to the NAIC at $2,084 per year. While Florida residents only saved 7 percent going from $500 to $1,000 they managed the second highest savings in the nation when they cranked their deductible up to $3,000.

In many cases, the states that run the biggest risk for natural disasters such as hurricanes and tornadoes will see the biggest premium drop when they raise their deductible. The willingness of the homeowner to take on a big share of the risk in a state where a natural disaster claim is more likely will lead insurers to offer a bigger discount.

Deductible Tips

While raising your deductible will result in a lower premium in most states, it is a personal decision that you should make based on your own financial situation.

Experts recommend keeping your deductible between 0.5 and 1 percent of the home’s value. A home valued at $150,000 should have a deductible that falls between $750 and $1,500.

When raising your deductible, keep the amount of the increase reasonable. You will no doubt be able to save a significant amount raising your deductible to $5,000, you must be have access to that amount of money quickly and easily if the worst were to happen.

If you cannot easily come up with the deductible amount, it is too high and should be lowered. Regardless of your deductible, your insurance should be saved for large claims. Filing numerous small claims will end up raising your home insurance rates and could even result in cancellation.