How large a deductible should I buy on my auto and homeowner’s policies?

By | March 26, 2014

The short answer is:  Choose the largest deductible with which you are comfortable that will significantly reduce your premium.  Each of us has a different tolerance for risk which is reflected in our buying decisions, not just insurance deductibles.  Due to inflation of the U.S. dollar, the ‘standard deductible’ has risen from $100 (or even zero) to its current range of $500 to $2,500, depending on the type of policy and insured peril.  Larger deductibles permit private insurance to remain viable because the first dollars of loss are the most expensive dollars to insure.

Having said that, there is a point past which a larger deductible will no longer reduce your premium enough in real dollars to compensate you for the additional out-of-pocket cost you will pay toward a claim.  I.e., the point of diminishing return. Once you have determined your economic comfort zone, try to apply your judgment consistently across all types of insurance coverage.  That is, don’t purchase a $50 auto comprehensive coverage deductible simply because of windshield breakage and then buy a $5000 homeowner’s all perils property deductible.  The probabilities of loss have already been calculated in the premium you will pay.