Insurance deductible for free and clear rental property

Investor · Atlanta · Member since 2019 · 529 posts · 89 votes

Hi,

My insurance costs increased dramatically, My deductible is 1% of property value currently. Should I change to like 5% of property value which may lower yearly payment of about 300$ on the free and clear rental property. Please advise

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Rod HanksBusiness Member

Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes

7mo

@Gp G.

A 5% deductible on a rental property is usually higher than most investors realize once you run the numbers. If your property is worth $250k, a 5% deductible means you’d be paying the first $12,500 out of pocket on a claim. Saving $300 a year often doesn’t justify taking on that much additional risk.

Many investors with free-and-clear rentals do raise deductibles to control premiums, but the sweet spot is often somewhere in the $2,500–$5,000 range depending on the property value and cash reserves. The real question is whether you’d be comfortable writing that check if a roof claim, fire, or major water loss happened tomorrow.

Another thing investors sometimes miss is how deductibles apply to specific perils. In many states, wind or hail may already have a separate percentage deductible, so increasing the main deductible may not change the biggest risk exposure anyway.

After working with rental property owners for 25+ years, I’ve found the best approach is choosing a deductible that meaningfully lowers the premium but still keeps the loss manageable if something goes wrong. Insurance works best when it protects against the big hits, not when the deductible becomes the biggest risk.

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Richard F.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
7mo
Depends almost entirely how easily and quickly you can come up with 5% in case of a major claim. The other consideration is, what is the TRUE condition of the total building and it's various systems, including electrical, plumbing, HVAC, building envelope, roof, and structural. If it is an older property, without complete updates, it is at greater risk for leaks, fires, blown roofs, etc.
I would add that your Tenant screening process is also a factor. Fire Bugs are a thing, as are generally careless people, so if you are not adequately screening, you are more likely to get a problematic Tenant at some point.
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Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
7mo
Quote from @Gp G.:

Hi,

My insurance costs increased dramatically, My deductible is 1% of property value currently. Should I change to like 5% of property value which may lower yearly payment of about 300$ on the free and clear rental property. Please advise

This is hard to answer with knowing 1% or 5% of what value BUT $300 doesn't sound like a significant savings on a home with an average replacement cost
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Jim Johnson
Real Estate Agent · Memphis · Member since 2026 · 576 posts · 340 votes
7mo
With a free-and-clear property, the decision usually comes down to risk tolerance vs. savings.

A higher deductible can lower premiums, but the key question is whether the savings justify the added exposure. If moving from 1% to 5% only saves about $300/year, you’re taking on significantly more out-of-pocket risk for relatively small annual savings.

Many owners look at it this way: could you comfortably absorb that higher deductible if a claim happens? If not, the lower deductible may be worth keeping.

Insurance is really about protecting against the larger, unexpected events — so the math and your reserve cushion both matter here.
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Patrick O'SullivanBusiness Member
Property Manager · Phoenix, AZ · Member since 2024 · 536 posts · 206 votes
7mo

With a free-and-clear property, it really comes down to your comfort with risk versus the savings. If the premium increase is hurting your cash flow, I’d shop the rate with other carriers before I’d gut my coverage like that.
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Rod HanksBusiness Member
Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
7mo
@Gp G.

A 5% deductible on a rental property is usually higher than most investors realize once you run the numbers. If your property is worth $250k, a 5% deductible means you’d be paying the first $12,500 out of pocket on a claim. Saving $300 a year often doesn’t justify taking on that much additional risk.

Many investors with free-and-clear rentals do raise deductibles to control premiums, but the sweet spot is often somewhere in the $2,500–$5,000 range depending on the property value and cash reserves. The real question is whether you’d be comfortable writing that check if a roof claim, fire, or major water loss happened tomorrow.

Another thing investors sometimes miss is how deductibles apply to specific perils. In many states, wind or hail may already have a separate percentage deductible, so increasing the main deductible may not change the biggest risk exposure anyway.

After working with rental property owners for 25+ years, I’ve found the best approach is choosing a deductible that meaningfully lowers the premium but still keeps the loss manageable if something goes wrong. Insurance works best when it protects against the big hits, not when the deductible becomes the biggest risk.
Rod Hanks Insurance4.9155 Reviews
Website View Page
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Gp G.
OP
Investor · Atlanta · Member since 2019 · 529 posts · 89 votes
7mo
Thank you all for your great feedback. It makes mores sense to me now.
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