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Hiking deductibles saves but hurts if disaster strikes

Increasing your homeowners' insurance deductible can be a fast way to save – or a fast-track to financial trouble if disaster strikes.

On average, raising your deductible from $500 to $1,000 will cut annual premiums by 7 percent, according to a new analysis from InsuranceQuotes.com. Up it from $500 to $2,000 and the average savings goes to 16 percent, they found. At $5,000, it's 28 percent.

With an average homeowners' insurance premium of $1,096 nationwide, according to the National Association of Insurance Commissioners, that simple shift could yield savings of $77, $175 and $307, respectively.

Savings vary depending on where you live. A North Carolina resident, for example, could see her bill cut by nearly 40 percent for jacking up the deductible to $2,000. Someone in Hawaii would save just 5 percent – much less in savings for that additional $1,500 in risk. (See chart below for a full state-by-state breakdown.)

Make no mistake, it is a risk.

"If there's a large loss, you're going to be responsible for that deductible," said Loretta Worters, a vice president for the Insurance Information Institute. "You don't want to be insurance poor."

Nearly half of Americans say they can't afford an emergency expense of even $400, or would cover it by selling something or borrowing money, according to a 2015 report from the Federal Reserve Board's Division of Consumer and Community Affairs. Roughly 66 million Americans, including a third of Gen Xers, have zero dollars saved for a rainy day, according to a recent Bankrate.com survey.

If you can't come up with $500, how do you expect to come up with $2,000 – let alone $5,000?

You might use those policy savings to help build up a rainy day fund, but if you don't have much saved, it might be smarter to save first with an eye to increasing your deductible later, Worters said.

Assess your policy for coverage gaps on some of the more common and costly claims. You might find you're comfortable with the higher deductible, but need more coverage overall, riders for valuables or extras like flood insurance or an umbrella policy.