One of the key decisions you’ll make when selecting your renters insurance policy is choosing the right deductible. A deductible is the amount of money you’ll pay out of pocket when you file a claim on your renters insurance policy.
Selecting the right deductible for your renters insurance requires striking a balance between what you’re willing to pay in premiums and what you’ll be obligated to pay if you file a claim.
what is a renters insurance deductible?
Renters insurance generally covers damage to or theft of your personal property, personal liability costs, and living expenses associated with temporarily residing away from home. If you’ve purchased another type of insurance policy before, whether it’s health insurance or car insurance, for example, you’ve likely found an insurance deductible.
A renters insurance deductible works basically the same way: it’s the part of the money you’ll have to pay out of pocket when you file a claim with your insurance company. For renters insurance, the deductible will generally only apply to damage to or theft of your personal property.
The size of your deductible is a choice you make when purchasing a renters insurance policy. a lower deductible means your claims will cost you less money out of pocket.
Typically, renters insurance deductibles will be $500 or $1,000, but insurers often offer a variety of options. For example, State Farm offers renters insurance deductibles of up to $2,000, while Lemonade Insurance Co. offers a specialized renters insurance policy with a $0 deductible. deductibles may also be offered as a percentage of your policy’s property coverage. For example, if your total personal property coverage extends to $10,000, a deductible policy set at a 10% rate means you will have a $1,000 deductible.
Which renters insurance deductible should I choose?
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The main consideration when choosing your deductible is the balance between the benefits of a lower deductible versus the higher premium you’ll pay for it. Your policy premium is the price you pay for your insurance coverage and is inversely related to your deductible. The lower your deductible, the higher your premium, because your insurance company will pay more if you file a claim.
Basically, by paying more in premiums, you’re reducing the uncertain costs associated with being able to file a claim.
For example, let’s say you get a quote for a renters insurance policy with $25,000 of personal property coverage for an annual premium of $240, including a $500 deductible (plan a). however, your insurance agent informs you that for an annual premium of $276 you can purchase the same policy but with a deductible of $250 (plan b). Plan B will cost $250 less each time you file a claim, so you’d pay an extra $36 a year to save $250 per claim.
However, if you never file a claim, your deductible level will only be relevant to the extent that it affects your premium cost. In other words, if you pay higher premiums for a lower deductible but don’t use the deductible, you won’t receive the benefits of your more expensive policy.
The following table estimates your cost for the first year of these two hypothetical policies, assuming you file zero claims or one $1,000 claim:
as you can see, making a single $1,000 claim would result in a savings of over $200 on the plan with the highest premium, plan b. your net savings would increase with each claim made, given the $250 difference in deductibles. on the contrary, if no claim is made, the total cost of plan a is cheaper.
You should keep in mind, however, that the premiums you pay to your renters insurance company are not static. Making multiple claims, or even a single claim, can cause your insurer to label you a higher risk customer and consequently increase your premium. Renters insurance companies generally give their customers more leeway for events outside of their control, like the weather, but other catastrophes or “perils” can affect premiums.
Let’s say you chose the lowest premium plan in the example above, opting for a $500 deductible to save $36 a year. In a stroke of bad luck, you have two separate plumbing incidents in one year and make separate claims to cover water damage from each event. If your insurance company increases your $240 premium by 15% in response to these claims, you’ll end up paying the same premium, $276, as the more expensive plan with a higher deductible.
Regardless of the deductible you choose, various claims have the potential to increase your premiums, but it’s important to remember that the premiums you pay can be variable. Rather, there are often rewards from your insurer for being a lower-risk customer: If you go several years without making a renters insurance claim, you may be eligible for a discount on your policy premium.
For this reason, we recommend that you do not file claims for minor damages that you may pay out of pocket. If a fire in your apartment results in only $600 in damage and you have a $500 deductible, it might be worth paying the full $600 yourself for replacement and repairs to avoid future premium increases. A renters insurance claim could save you $100 in the short term, but hurt you in future premium costs, especially if additional unexpected events cause you to file even more claims.
example: how your deductible could affect your renters insurance rates
Your best deductible choice will be based on your own risk preferences, but as a general rule, increasing your renters insurance deductible will result in cheaper premiums.
Under this policy, doubling your deductible from $250 to $500 lowers your annual premium by $36, or 13%. doubling it back to $1,000 lowers your annual premium by an additional $12, or 5% less than the cost of the $500 deductible policy. this is just an example, and in fact, your renters insurance costs may be lower depending on your coverage, insurer, location, and property insured.
For renters insurance policies, the savings you receive from a higher deductible may be minimal, and we recommend selecting a plan with a lower deductible when possible, given the potential cost of file a claim. In general, the decision you make is up to you, but be sure to consider the trade-off between short-term and long-term costs, taking into account the possibility of unexpected events and subsequent claims.
rates are based on an allstate policy with $25,000 in damage or theft of personal property and $100,000 in personal liability costs.