Latest / The Emergency Fund Podcast with Fexingo: Cash Reserves, Saving, and Financial Cushion / How Your Emergency Fund Can Cover a Homeowners Insurance Deductible
Transcript
- Lucas: So we talk a lot on this show about what your emergency fund is actually for — job loss, medical bills, car repairs. But there's one expense that hits a huge number of households, and it's almost never planned for: your insurance deductible. Luna: You mean like if your basement floods or a tree falls on your roof, and suddenly you owe fifteen hundred bucks before the insurance company pays a dime. Lucas: Exactly. And that fifteen hundred is actually on the low end. The Insurance Information Institute ran a survey last year — 2025 — and found the average homeowners insurance deductible in the US is right around fifteen hundred dollars. But if you live in a state prone to wind or hail, your deductible could be a percentage of your home's insured value — often one percent or two percent. On a three hundred thousand dollar policy, that's three thousand to six thousand dollars. Luna: And I'd guess most people don't have that sitting in checking. They have their emergency fund in a high-yield savings account, but they haven't sized it for this specific risk. Lucas: Right. And here's the really striking number from that same survey: thirty-seven percent of homeowners said they don't have enough liquid savings to cover their deductible. That means more than a third of people with a policy they're paying premiums on would have to borrow, put it on a credit card, or just not file the claim. Luna: Not filing the claim is actually the most common outcome. The Insurance Research Council has data showing that about one in six homeowners who experience a loss don't file a claim — and the top reason is they can't afford the deductible. Lucas: It's a brutal irony. You've been paying premiums for years, you finally need the insurance, and the deductible itself becomes a barrier. So the argument we want to make today is pretty simple: whatever you decide your emergency fund target is — three months of expenses, six months — it should at minimum be big enough to cover your highest insurance deductible. Luna: And that deductible might not be your homeowners. For renters, it could be a renters policy deductible, which is usually lower — maybe two hundred to five hundred — but still real. Or your health insurance deductible, which can be thousands. Lucas: Let's stay focused on property for this episode. But you're right — the principle applies across the board. The reason I think this is such a useful lens is that it gives people a concrete floor. Most financial advice says 'save three to six months of expenses,' which is good but vague. What does 'expenses' mean? If instead you say 'your emergency fund must at least equal your homeowners deductible,' that's a number you can actually look up on your policy declarations page today. Luna: And if you have a percentage deductible, that number might be bigger than you think. So you might need to adjust your savings target upward. Lucas: Speaking of that — if our money conversations have helped you think about a decision differently, or if you've ever used one of these episodes to get more comfortable with your own financial plan, we just want to mention something quick. We deliberately don't run ads on these episodes. That's a choice we made because we think the conversation is better without interruptions. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep this exactly what it is — no sponsors, no pitches, just us talking through something useful. And we really appreciate the people who do that. Lucas: Alright — back to deductibles. So let's say your deductible is fifteen hundred dollars. You have an emergency fund of ten thousand — that's fine. But what if your deductible is six thousand because you're in a wind zone and your policy has a two percent deductible? Suddenly your ten thousand dollar fund is only four thousand above the deductible, which might not be enough for the other stuff. Luna: And that's the point — the deductible isn't the only thing the fund needs to cover. It's a floor, not the ceiling. You still need to cover living expenses, job loss, all that. Lucas: Right. So think of it this way: your emergency fund equals the larger of either your deductible or your three months of expenses. And if your deductible is bigger, that becomes your baseline. Let's use a real example. A friend of mine in Florida has a home insured for four hundred thousand. Her wind and hail deductible is two percent — eight thousand dollars. Her monthly expenses are around five thousand. Three months of expenses would be fifteen thousand. So her deductible is lower than three months of expenses, so she targets fifteen thousand. But if her expenses were only two thousand a month, three months would be six thousand — and her deductible is eight. Then she needs at least eight thousand. Luna: That's a clean rule. I like it. And it also helps people who feel overwhelmed by the 'three to six months' rule. If you can't get to three months right now, at least get to your deductible. That's a win. Lucas: Exactly. One step at a time. And look, the data suggests this is a real pain point. According to the Federal Reserve's 2024 Survey of Household Economics, about a third of adults couldn't cover a four hundred dollar emergency with cash. A fifteen hundred dollar deductible is almost four times that. So it's not surprising that people struggle. Luna: And if you have a percentage deductible, it can be even more. So the strategy here is: know your deductibles. Check your policy. If you have both homeowners and auto, your emergency fund should cover the highest of those. Lucas: And don't forget that some deductibles are per claim. If you have two separate claims in a year — say a roof leak in March and a burglary in November — you could owe two deductibles. So ideally your fund can handle that, but at minimum, one. Luna: So what about people who are already living on a tight budget? How do they build that deductible-sized cushion? Lucas: Same way you build any emergency fund: start small. Automate a transfer every paycheck — even twenty five dollars. Put any windfall — tax refund, bonus, gift — directly into that account. And treat it as non-negotiable. The deductible is not optional if you want the insurance to work. Luna: And there's also a behavioral piece. If you know your emergency fund is specifically sized to cover your deductible, you're less likely to dip into it for non-emergencies. It has a purpose. Lucas: Exactly. It's a mental accounting trick that actually works. So let's wrap with this: pull out your insurance policy today. Find the deductible. Write it down. Then check your emergency fund balance. If your fund is smaller than that number, that's your new first savings goal. Not three months of expenses — just the deductible. Once you hit that, keep going. But you've closed a real gap. Luna: And if you don't own a home, check your renters policy. Or your health insurance. The principle is the same. Lucas: Yeah. It's a small but concrete step that makes the whole system work when you need it most.