Choosing a Renters Insurance Deductible
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One of the key decisions you'll make when buying renters insurance is the deductible. A deductible is the amount you'll pay out of pocket if you make a claim on your policy.
A higher renters insurance deductible will lower the price of the premium. But you'll also have to pay a larger share of your claims.
Selecting the right deductible for your renters insurance requires balancing what you're willing to pay in premiums with what you'll need to pay if you file a claim.
What is a deductible in renters insurance?
Renters insurance generally covers damage or theft of personal property, personal liability costs and living expenses associated with having to temporarily live away from home. If you've bought insurance before — be it health insurance or auto insurance — you've likely encountered an insurance deductible.
A renters insurance deductible works the same way. It is the share you'll have to pay out of pocket if you file a claim. In the case of renters insurance, the deductible will generally only apply to damage or theft of personal property.
Suppose a fire in your apartment causes significant damage to your belongings, and you file a $10,000 claim. If your renters policy has a deductible of $1,000, you would pay $1,000 and your insurance company would pay the remaining $9,000. (That's assuming the fire's cause was covered under your policy.
This deductible will apply each time you file a claim. If another fire were to break out in your house, this time resulting in $5,000 of damage, you would again pay $1,000. Your insurance company would pay the other $4,000.
You'll choose your deductible when you buy a renters insurance policy. A higher deductible means your claims will cost you less money out of pocket.
Typically, renters insurance deductibles are $500 or $1,000, but companies often provide a range of options. State Farm has deductibles of up to $2,000, while Lemonade offers a specialized renters insurance policy with a $0 deductible. Deductibles may also be a percentage of your policy's coverage. If your personal property is covered for $10,000, a deductible of 10% means you'd have a $1,000 deductible.
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Which renters insurance deductible is right for you?
The main consideration when choosing your deductible is the trade-off between the benefits of a lower deductible versus a higher premium. The premium is higher because your insurance company will be paying more of any claim you make.
By paying more in premiums, you're lowering the uncertain costs of a potential claim.
Say you get a quote for a renters insurance policy. The price is $240 a year for $25,000 of personal property coverage , with a deductible of $500 (Plan A). However, your insurance agent tells you that the same policy would cost $276 annually with a $250 deductible (Plan B). Plan B will cost $250 less every time you make a claim. So you'd pay an additional $36 a year to save $250 per claim.
If you never make a claim, though, your deductible won't matter. If you pay higher premiums for a lower deductible but don't use the deductible, you won't get the benefits of the pricier policy.
The following table estimates your cost for the first year of these hypothetical policies, assuming you file either zero claims or one claim for $1,000:
Plan A | Plan B | |
|---|---|---|
| Deductible | $500 | $250 |
| Annual premium | $240 | $276 |
| Total cost (zero claims) | $240 | $276 |
| Total cost (one $1,000 claim) | $740 | $526 |
Making a single $1,000 claim would save you over $200 with the more expensive premium. That savings would increase with every claim, given the $250 difference in deductibles. But if you make no claim, the total cost of Plan A is cheaper — and most people only make a renters or home insurance claim once every 20 years.
Keep in mind, renters insurance premiums are not static. Making multiple claims — or even one claim — can result in your company labeling you higher risk and increasing your premium. They generally give more leeway for events out of your control, such as weather, but other catastrophes (or "perils") can affect premiums.
Say you choose Plan A, with the $500 deductible, to save $36 a year. And then you have a stroke of bad luck and file multiple claims for water damagefrom two plumbing problems in one year.
No matter which deductible you choose, multiple claims have the potential to increase your premiums. On the flip side, companies often reward lower-risk customers. If you go several years without making a renters insurance claim, you may be eligible for a discount.
For this reason, it's often better not to file claims for smaller damages you can afford to pay out of pocket. If a fire in your apartment results in $600 of damage, and you have a $500 deductible, it might be worth paying the full $600 yourself to avoid premium increases in the future. A renters insurance claim could save you $100 in the near term but hurt you in premium costs down the line. This is especially true if additional unexpected events cause you to file even more claims.
Example: How your deductible could affect your renters insurance rates
Your best choice of deductible will be based on your own risk preferences. But in general, increasing your deductible will mean cheaper premiums.
Under this policy, doubling your deductible from $250 to $500 decreases your annual premium by $36, or 13%. Doubling it again to $1,000 cuts the premium by another $12, or 5% less than the cost of the $500 deductible policy. This is just one example, and your renters insurance rates may be lower. It will depend on your coverage and location, the insurance company and the property insured.
For renters insurance policies, your savings for an increased deductible can be minimal, so consider a lower deductible plan when possible, given the potential cost of a claim.
Methodology
Rates are based on a policy from Allstate with $25,000 for personal property theft or damage and $100,000 for personal liability costs.
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