Understanding Insurance Deductibles - How to Choose the Right Amount (Updated 2026)

Your insurance deductible is one of the most important—and most misunderstood—aspects of your coverage. Choose too low, and you're wasting money on premiums. Choose too high, and you might not be able to afford to file a claim when you need to.

In 2026, with insurance rates rising 8-15% across California, understanding deductibles and choosing the right amount can save you hundreds or thousands of dollars while maintaining appropriate protection.

This guide explains exactly what deductibles are, how they affect your premiums, how to choose the right amount for your situation, and common mistakes to avoid.

What Is a Deductible?

A deductible is the amount you pay out-of-pocket before your insurance coverage kicks in.

Simple Example

You have a $1,000 deductible on your auto collision coverage. You cause an accident that damages your car, with $5,000 in repair costs.

You pay: $1,000 (your deductible) Insurance pays: $4,000 Total repairs: $5,000

Another Example

You have a $2,500 deductible on your homeowners insurance. A tree falls on your roof, causing $10,000 in damage.

You pay: $2,500 (your deductible) Insurance pays: $7,500 Total repairs: $10,000

Key Point

The deductible applies per claim, not per year. If you have two separate claims in one year, you pay the deductible twice.

How Deductibles Affect Your Premium

Deductibles and premiums have an inverse relationship:

Higher deductible = Lower premium Lower deductible = Higher premium

The Math

Let's look at real numbers for typical Cerritos homeowners:

Home Insurance Example:

DeductibleAnnual PremiumOut-of-PocketPremium Savings$500$1,800/year$500 per claimBaseline$1,000$1,600/year$1,000 per claim$200/year$2,500$1,400/year$2,500 per claim$400/year$5,000$1,200/year$5,000 per claim$600/year

Auto Insurance Example:

DeductibleAnnual PremiumOut-of-PocketPremium Savings$250$1,400/year$250 per claimBaseline$500$1,250/year$500 per claim$150/year$1,000$1,100/year$1,000 per claim$300/year$2,500$950/year$2,500 per claim$450/year

The Pattern: Each step up in deductible typically saves you 10-25% on your premium.

Different Deductibles for Different Coverages

Your insurance policy likely has multiple deductibles for different types of coverage:

Home Insurance Deductibles

All Other Perils (AOP) Deductible:

• Applies to most claims (fire, theft, wind, hail, etc.)

• Typically: $500, $1,000, $2,500, $5,000, or $10,000

• Most common: $1,000-2,500

Wind/Hail Deductible (in some states):

• Separate, higher deductible for wind and hail damage

• Typically: 1-5% of dwelling coverage

• Example: Home insured for $500,000 with 2% wind/hail deductible = $10,000 deductible for wind/hail claims

Hurricane Deductible (coastal areas):

• Separate deductible for hurricane damage

• Typically: 1-10% of dwelling coverage

• Not common in Cerritos, but relevant for coastal Orange County

Earthquake Deductible (California):

• Separate earthquake insurance policy

• Deductible typically: 10-25% of dwelling coverage

• Example: $500,000 home with 15% deductible = $75,000 earthquake deductible

Auto Insurance Deductibles

Collision Deductible:

• Applies when you cause an accident or hit an object

• Typical options: $250, $500, $1,000, $2,500

• Most common: $500-1,000

Comprehensive Deductible:

• Applies to theft, vandalism, weather damage, animals

• Typical options: $250, $500, $1,000, $2,500

• Most common: $500-1,000

• Can be different from collision deductible

Note: Liability coverage doesn't have a deductible—it pays third parties you injure or whose property you damage.

How to Choose the Right Deductible

Choosing the right deductible involves balancing premium savings with your ability to pay out-of-pocket if a claim occurs.

The Emergency Fund Test

Rule of thumb: Your deductible should not exceed your emergency savings.

Why: If you have a $2,500 deductible but only $1,000 in emergency savings, you can't afford to file a claim when you need to.

Recommended:

• Emergency fund of $5,000-10,000 → Consider $1,000-2,500 deductible

• Emergency fund of $10,000-25,000 → Consider $2,500-5,000 deductible

• Emergency fund of $25,000+ → Consider $5,000-10,000 deductible

The Break-Even Analysis

Calculate how long it takes for premium savings to cover the higher deductible:

Example:

Increasing your home deductible from $1,000 to $2,500 saves you $400/year.

Break-even calculation:

• Increased deductible: $1,500 ($2,500 - $1,000)

• Annual savings: $400

• Break-even: $1,500 ÷ $400 = 3.75 years

Interpretation: If you go 3.75 years without a claim, you've saved enough in premium to cover the higher deductible. After that, you're ahead.

General Rule: If break-even is 5 years or less, and you can afford the higher deductible, it usually makes sense to increase it.

Consider Claim Frequency

How often do you typically file claims?

If you file claims frequently:

• Lower deductibles make more sense

• You'll pay the deductible multiple times

• Premium savings won't offset higher out-of-pocket costs

If you rarely file claims:

• Higher deductibles make sense

• You'll save on premiums year after year

• Rare claims won't erode savings

Typical patterns:

• Auto claims: Average driver files a claim every 7-10 years

• Home claims: Average homeowner files a claim every 9-10 years

Conclusion: Most people benefit from higher deductibles because claims are relatively rare.

Risk Tolerance

Conservative approach (risk-averse):

• Lower deductibles ($500-1,000)

• Minimal out-of-pocket if claim occurs

• Higher premiums

• Peace of mind

Moderate approach (balanced):

• Medium deductibles ($1,000-2,500)

• Reasonable out-of-pocket

• Moderate premium savings

• Best for most people

Aggressive approach (risk-tolerant):

• High deductibles ($2,500-10,000)

• Significant out-of-pocket if claim occurs

• Maximum premium savings

• Only if you have substantial emergency funds

Deductible Strategies by Coverage Type

Homeowners Insurance

Recommended: $1,000-2,500 for most Cerritos homeowners

When to go lower ($500-1,000):

• You have minimal emergency savings

• Your home is older with higher maintenance needs

• You're risk-averse and want minimal out-of-pocket

When to go higher ($2,500-5,000):

• You have substantial emergency funds ($10,000+)

• You rarely file claims

• You want maximum premium savings

• You're financially comfortable

Special note on earthquake deductibles:

• Earthquake deductibles are typically 10-25% of dwelling coverage

• These are very high ($50,000-100,000+ for many homes)

• This is normal and unavoidable with earthquake insurance

• Consider whether earthquake insurance makes sense at all given the high deductible

Auto Insurance

Recommended: $500-1,000 for collision and comprehensive

When to go lower ($250-500):

• You have a newer, expensive vehicle

• You're financing/leasing (lower deductible protects your investment)

• You drive in high-traffic areas (higher accident risk)

• You can't afford $1,000 out-of-pocket

When to go higher ($1,000-2,500):

• You have an older vehicle (lower value)

• You have substantial emergency savings

• You drive minimal miles

• You want maximum premium savings

Consider different deductibles for collision vs. comprehensive:

• Collision: Higher deductible ($1,000) because at-fault accidents are somewhat avoidable

• Comprehensive: Lower deductible ($500) because theft, vandalism, and weather aren't controllable

When to Drop Coverage Entirely

For older vehicles:

If your vehicle is worth less than $3,000-4,000, consider dropping collision and comprehensive coverage entirely (keeping only liability).

Math:

• Collision/comprehensive premiums: $400-800/year

• Maximum payout if totaled: $3,000

• After deductible ($1,000): $2,000 net

• Break-even: 2.5-4 years

If your car is worth $3,000 and you're paying $600/year for collision/comprehensive with a $1,000 deductible, you're paying 20% of the car's value annually for coverage that maxes out at $2,000.

Better strategy: Drop the coverage, save the premium, and self-insure.

Common Deductible Mistakes

Mistake #1: Choosing the Lowest Deductible Without Considering Cost

The problem: Defaulting to the lowest deductible ($500) without considering that you might save hundreds per year with a higher deductible.

Example: Paying $400/year extra for a $500 deductible vs. $1,000 deductible. You'd need to file a claim every 1-2 years for this to make sense—but most people don't.

Fix: Always compare premiums at multiple deductible levels and calculate break-even.

Mistake #2: Choosing a Deductible You Can't Afford

The problem: Choosing a $5,000 deductible to save on premiums, but only having $2,000 in emergency savings.

Result: You can't afford to file a claim when you need to, negating the purpose of insurance.

Fix: Never choose a deductible higher than your liquid emergency savings.

Mistake #3: Not Considering Claim Frequency

The problem: Choosing high deductibles when you historically file claims frequently.

Example: Teen driver with accidents every 2-3 years choosing $2,500 deductible. Premium savings are eroded by frequent out-of-pocket costs.

Fix: If you file claims often, lower deductibles may actually be cheaper long-term.

Mistake #4: Different Deductibles for Similar Coverages

The problem: Having a $500 collision deductible but $2,500 comprehensive deductible (or vice versa) without a strategic reason.

Why it's confusing: Creates complexity without clear benefit. Both coverages protect your vehicle; the deductibles should usually be similar.

Fix: Align deductibles unless you have a specific reason to differentiate (e.g., higher theft risk in your area might justify lower comprehensive deductible).

Mistake #5: Not Reassessing Deductibles Regularly

The problem: You chose a $500 deductible 10 years ago when you were financially struggling, but now you have $20,000 in emergency savings and haven't adjusted.

Result: Overpaying on premiums unnecessarily.

Fix: Review your deductibles annually. As your financial situation improves, increase deductibles to save on premiums.

2026 Deductible Considerations

With insurance rates rising 8-15% in 2026, deductibles are more important than ever:

Strategy #1: Increase Deductibles to Offset Rate Increases

If your rates increased 10% at renewal:

• Instead of accepting the increase, raise your deductible

• You might save 8-12% by increasing deductible from $1,000 to $2,500

• Net result: Little to no overall rate increase

Strategy #2: Evaluate Your Actual Claim Frequency

Look at the past 5-10 years:

• How many claims have you filed?

• How much did you receive per claim?

• Would you have been better off with higher deductibles and lower premiums?

For most people: The answer is yes—higher deductibles save money over time.

Strategy #3: Consider Inflation

With repair costs up 30-40% since 2020:

• Your old $500 deductible may not make sense anymore

• Repair costs are higher, making small claims less appealing to file anyway

• Higher deductibles reduce temptation to file marginal claims (which can increase rates)

Take Control of Your Insurance Costs

Deductibles are one of the few aspects of insurance pricing you directly control. Choosing the right deductible can save you hundreds or thousands of dollars over the life of your policy—without sacrificing meaningful protection.

Ready to optimize your deductibles?

At Pinoy General Insurance, we help Cerritos residents choose deductibles that balance savings with protection. We'll:

• Show you premium costs at multiple deductible levels

• Calculate break-even points

• Recommend appropriate deductibles based on your financial situation

• Compare quotes from multiple carriers to maximize savings

Contact us today:

• Call: (562) 402-1737

• Email: info@pinoygeneralinsurance.com

• Visit: 17304 Norwalk Blvd, Cerritos, CA 90703

• Web: pinoygeneralinsurance.com

Free insurance reviews to optimize your deductibles and save money.

Take control of your insurance costs. Choose your deductibles strategically.

Frequently Asked Questions

What's a good deductible for homeowners insurance?

For most Cerritos homeowners: $1,000-2,500. This balances premium savings with manageable out-of-pocket costs.

Should my auto collision and comprehensive deductibles be the same?

Usually, yes. Some people choose lower comprehensive (for theft) and higher collision (for at-fault accidents), but similar deductibles are simpler.

How much can I save by increasing my deductible?

Typically 10-25% on the affected coverage. Increasing home deductible from $1,000 to $2,500 might save $300-500/year.

Can I change my deductible mid-policy?

Yes. Contact your insurer to adjust deductibles at any time. Changes typically take effect immediately.

What if I can't afford my deductible when I need to file a claim?

This is why choosing an affordable deductible is critical. If you can't pay the deductible, you can't access your insurance. Never choose a deductible higher than your emergency savings.

Do rate increases affect my deductible?

No. Your deductible is the dollar amount you pay per claim—it doesn't change with rate increases. However, increasing your deductible can help offset rate increases.

Should I have different deductibles on different vehicles?

Possibly. Newer, financed vehicles might warrant lower deductibles. Older vehicles might justify higher deductibles or dropping collision/comprehensive entirely.

Last Updated: January 2026

This blog post is for informational purposes only. Deductible recommendations vary by individual situation. Contact Pinoy General Insurance Services for personalized advice on choosing the right deductibles for your coverage.