Setting Deductibles on Insurance Policies Too Low
This is a common mistake made by people who get nervous at the prospect of paying a lot of money out-of-pocket in the event of a claim. But raising your deductible (the amount you are responsible for before your insurance kicks in) will save you plenty in premiums. Openshaw, like many other experts, goes so far as to advise, "Take the highest deductible possible to save on your premium."
Even changing your deductible from $500 to $1,000 will save you around $80 a year on a typical homeowner's policy on a residence valued at around $100,000. And even though $80 may not seem like a lot, keep in mind the realpolitik of insurance: Claims under $1,000 are seldom worth bothering with anyway, experts agree, because filing them puts you at risk of being dropped by your policy holder and/or having your premiums raised.
Given this catch-22, you're better off with a higher deductible. To make sense of all this, it may help to remind yourself that the true purpose of insurance is to protect you from catastrophe, not routine bad luck. A loss that costs you $1,000 is regrettable but rarely catastrophic. As long as you're covered beyond an amount you can reasonably absorb, your insurance is serving its purpose. Paying for anything more is bad money management.