The Hidden Dangers of Rising Home Insurance Deductibles

In recent years, a growing number of Americans have adopted a seemingly simple strategy to reduce their home insurance premiums. However, this approach carries significant risks that homeowners need to be aware of. 

Data reveals that over the past five years, home insurance deductibles have surged dramatically. Many homeowners are opting for policies with larger deductibles in an attempt to counterbalance soaring premiums.

While this strategy may initially appear to offer financial relief, experts caution that it also introduces additional risk.

A home insurance deductible is the sum a homeowner must pay out-of-pocket before the insurance company contributes towards the cost of a claim. Opting for higher deductibles can indeed result in lower premiums.

However, if your home is susceptible to damage, you could find yourself in a precarious financial situation.

In 2023, new home insurance policies with deductibles exceeding $2,000 rose by 44% compared to the previous year, while those with $500 deductibles decreased by 16%, according to data from Matic Insurance.

Charles Nyce, an Associate Professor of Risk Management and Insurance at Florida State University’s College of Business, warns of the dangers of this trend. He states, “Deductibles have become a very big issue, but it’s dangerous, there will be people who have losses they cannot afford to have.”

This shift in the market coincides with a steep increase in the national average for home insurance premiums.

Bankrate reports that the average coverage on a $250,000 home has risen by 20% from 2022 to $1,428 per year. Homeowners in areas prone to natural disasters, such as Florida, face even higher rates, with some being charged up to $6,000 annually for coverage.

Nyce suggests that homeowners consider alternative strategies to reduce premiums, such as taking measures to protect their homes from natural disasters.

He also advises homeowners to actively seek new coverage each year, pay attention to their limit (the highest amount the insurer will pay for a claim), and inquire about available discounts and how to qualify for them.

However, homeowners must be prepared to cover the agreed-upon deductible if a loss occurs. Many deductibles are given in fixed dollar amounts, but others are calculated as a percentage of the home’s insurance premium, typically between 1 and 2% of its value. I

n Florida, a common deductible for homeowners insurance is a 2% deductible for hurricane losses. This means homeowners would be responsible for the first 2% of the insured value of the home in the event of a claim.