With any insurance policy, a deductible is the amount of the covered loss that the insured must pay out of pocket. In other words, a homeowner must meet his/her specific limit before the policy benefits go into effect. For example, if a homeowner filed a claim for a loss of $3,000 and had a deductible of $1,000, the insurance company would pay the policyholder $2,000 in benefits. These are intended to mitigate the insurer's risk and distribute the financial responsibility for losses.

Benefits of Going High

Higher deductibles mean that the insurer will not have to pay out as much money in the event of a loss, which in turn reduces their risk in issuing coverage. This reduced risk allows the insurer to charge the homeowner lower premiums. In other words, as the levels go up, premiums go down. Homeowners can save substantial amounts of money on their annual premiums by setting the amount as high as they can afford. Moreover, high deductibles are a deterrent for filing claims excessively, which will also help keep premiums affordable.

Benefits of Going Low

Low deductibles ensure that you will be able to pay the out-of-pocket portion of your claim in the event of a loss. You will not have to face the stress of avoiding filing a claim because your levels are too high. With some insurers, policyholders can choose a figure as low as $0-$100. On the other hand, extremely low deductibles are usually paired with very expensive premiums. Your best bet is to set it at the highest level you can comfortably afford and then save the difference in the premiums.