Choosing a Renters Insurance Deductible

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 will pay out of pocket when you make a claim on your renters insurance policy.

Selecting the appropriate deductible for your renters insurance requires striking a balance between what you're willing to pay in premiums versus what you will be obligated to pay in the event you file a claim.

What is a deductible in renters insurance?

Renters insurance generally covers damage or theft of your personal property, personal liability costs and living expenses associated with temporarily residing outside your house. If you've purchased another type of insurance policy before — be it health insurance or auto insurance, for example — you've likely encountered an insurance deductible.

A renters insurance deductible works largely the same way: It is the share of money you will have to pay out of pocket when you file a claim to your insurance company. In the case of renters insurance, the deductible will generally only apply to damage 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 will often provide a range of options. For example, State Farm offers renters insurance deductibles 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 instance, 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 you choose?

The main consideration to make when choosing your deductible is the trade-off between the benefits of a lower deductible versus the higher premium you will pay for it. Your policy premium is the price you pay for your insurance coverage, and it has an inverse relationship with your deductible. The lower the deductible, the higher your premium — because your insurance company will be paying more in the event you make a claim.

Essentially, by paying more in premiums you are lowering the uncertain costs associated with potentially making a claim.

For instance, say you get a quote for a renters insurance policy with $25,000 of personal property coverage for a $240 annual premium, including a deductible of $500 (Plan A). However, your insurance agent informs you that for a $276 annual premium you can purchase the same policy but with a $250 deductible (Plan B). Plan B will cost $250 less every time you make a claim, so you would pay an additional $36 a year to save $250 per claim.

If you never make a claim, however, the level of your deductible will only be relevant to the extent it affects the cost of your premium. 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 pricier policy.

The following table estimates your cost for the first year of these two hypothetical policies, assuming you either file zero claims or one claim worth $1,000:

As you can see, making a single $1,000 claim would result in over $200 of savings under the plan with the more expensive premium, Plan B. Your net savings would increase with every claim made, given the $250 difference in deductibles. Conversely, if no claim is made, the total cost of Plan A is cheaper.

You should be aware, however, that premiums you pay to your renters insurance company are not static. Making multiple claims, or even a single claim, can result in your insurer labeling you as a higher-risk customer and consequently increasing your premium. Renters insurance companies generally give their clients more leeway for events out of their control, such as weather, but other catastrophes or "perils" can affect premiums.

Say that you chose the plan with a cheaper premium in the previous example, opting for a $500 deductible in order to save $36 a year. In a stroke of bad luck, you have two separate plumbing incidents in a year, and you make separate claims to cover the water damage of each event. If your insurance company raises your $240 premium by 15% in response to these claims, you will end up paying the same premium, $276, as with the more expensive plan but with a higher deductible.

No matter which deductible you choose, multiple claims have the potential to increase your premiums, but it's important to remember that the premiums you pay can be variable. Conversely, 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's premium.

For this reason, we recommend you do not file claims for smaller damages that you can afford to pay out of pocket. If a fire in your apartment results in only $600 of damage, and you have a $500 deductible, it might be worth paying the full $600 yourself for replacement and repairs 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, especially 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 as a general rule, increasing your renters insurance deductible will result in 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 decreases your annual premium by an additional $12, or 5% lower than the cost of the $500 deductible policy. This is just one example, and your renters insurance costs may in fact be lower depending on your coverage, insurer, location and property insured.

For renters insurance policies, the savings you receive for an increased deductible can be minimal, and we recommend selecting a lower deductible plan when possible, given the potential cost of making a claim. Overall, the decision you make will be up to you, but be sure to factor in the trade-off between short-term and long-term costs, keeping in mind the potential for unexpected events and consequent claims.

Methodology

Rates are based on a policy from Allstate with $25,000 worth of personal property theft or damage and $100,000 worth of personal liability costs.