Money is still tight for many Americans, meaning most are looking to save where they can. Some people have even turned to their insurance policies as a place to cut costs. Insurance can be expensive, but consumers should weigh where they can safely reduce spending without jeopardizing important protections.
Two typical places many insured individuals consider cutting are the dwelling or liability limits on their homeowners policy and the liability limits on their auto policy. Reducing limits may seem like an easy way to save on premiums, but it increases exposure if a serious claim or lawsuit occurs. For practical tips that cover both houses and cars, see Homeowners and Auto Insurance Tips.
Cutting liability limits leaves you vulnerable to risk and usually does not save meaningful money over the long run. You might lower your premium a little today, but the potential cost if someone is injured or your property is damaged can be far greater than any short-term savings.
If you want to decrease premiums, a more prudent option is raising deductibles on auto and home policies. For example, increasing a homeowners deductible from $250 to $500 can reduce premiums by up to about 15%. Raising the physical damage deductible on an auto policy to $500 or $1,000 can often cut collision/comprehensive premiums by 30% or more. For additional ideas specific to autos, see Ways to Save on Auto Insurance.
Some consumers worry they won't have $500 available to cover a larger deductible if they need to file a claim. In many cases, it will be nearly as difficult to come up with $500 as $250, but the monthly premium savings from the higher deductible can be set aside to build that cushion. Often the extra $250 can be saved in less than two years.
If a $1,000 deductible feels like too large a step, take a gradual approach. Increase to $500 first and put the premium savings into a dedicated savings account. Once you have $500–$750 saved, you can consider moving to a $1,000 deductible knowing you have funds to cover it.
Unlike lowering coverage limits, raising deductibles can reduce your premiums without increasing your liability exposure. If you want to review options for your specific situation, talk to your agent.
Frequently Asked Questions
Will raising my deductible actually lower my premium?
Yes; higher deductibles generally reduce the insurer's risk and lead to lower premiums, especially for physical damage coverages.
How much should I save before increasing my deductible?
Experts often recommend saving at least the full deductible amount so you can cover a claim without financial strain.
Does raising my deductible affect liability coverage?
No; deductibles apply to property or physical damage coverages and do not reduce your liability limits for injuries to others.
Are there other ways to lower premiums without increasing risk?
Yes; consider bundling policies, qualifying for discounts, improving home or auto safety features, and reviewing coverage for items you no longer need.