Your deductible can significantly impact your monthly premium (the amount you pay to keep your insurance policy). It also determines how much you will end up paying out of pocket if a storm damages your home.
By understanding how deductibles work and what your different options are, you’ll be better prepared if you ever have to file a claim with your insurance company.
What are homeowners insurance deductibles?
A deductible is the amount of money you have to pay before your insurance kicks in. In other words, it’s the amount your insurer will deduct from your claim settlement. You can choose your deductible amount for your insurance policy. Typically, the smaller your deductible, the higher your premium will be—and vice versa.
How do deductibles work?
Let’s say, for example, that a tree falls on your roof. Your deductible is $1,000, and the total cost to repair the damage to your home is $8,000. Your insurer will cut you a check for $7,000, and you’ll be responsible for paying the remaining $1,000 out of pocket.
It’s important to note, in most cases, that you will be required to pay your deductible for every claim you make—not just once or up to a certain limit.
What are the different types of deductibles for homeowners insurance?
Unlike auto insurance policies, homeowners insurance deductibles can either be a flat amount or percentage-based.
Standard deductibles are fixed—like in the tree example we gave above. A standard deductible is the amount you pay before your insurance carrier will cover the rest. The nice thing about a standard deductible is you’ll always know what to expect and what you’ll be responsible for when filing a claim.
A common misunderstanding regarding percentage-based deductibles is assuming the percentage is taken from the amount of the loss. But that’s not the case. If your deductible is 1%, that means it’s 1% of the amount your home is insured for, also known as Coverage A or the Dwelling Limit. Let’s say your home’s insured for $600,000, an amount that safely covers the house itself, your personal property, and liability.
If your deductible is 1%, that means you’d have to pay $6,000 before your insurance covers anything. That’s a lot to pay out of pocket! You don’t want any surprises in the case of a disaster, so make sure you thoroughly understand your deductible and how your coverage works before you finalize your policy.
The most common reason to choose a percentage-based deductible over a standard deductible is to decrease your premium. Just remember that when you increase your deductible to lower your premium, you’re assuming more risk and will have less of a safety net if something should go wrong. Make sure you can comfortably afford to pay whatever deductible amount you choose.
Do I need to pay a deductible for liability?
No. Generally, there’s no deductible for the liability part of your insurance policy. If someone slips and falls on your property and sues you because they broke their ankle, your insurance company could cover the medical costs and legal fees associated with the case.
What about deductibles for disasters?
High-risk areas naturally result in more claims. Insurers have to figure out how to protect themselves in the event of numerous large claims, and one way to do that is to require higher deductibles. If you live in an area with frequent storms or other natural disasters, your insurance carrier may apply special rules concerning your deductible.
For example, a carrier may set a minimum deductible for wind and hail claims. You could have a $1,000 deductible for the other perils in your policy, but for wind/hail claims, the minimum could be $1,500.
Standard insurance policies won’t cover earthquakes, so you’ll need to get either an endorsement or a separate policy to protect your home. If you live in a region with frequent earthquakes, your deductible could range from 2–20%; it will likely need to be at least 10%. Different states set their own minimum requirements for insurance coverage.
If something covered by your standard policy damages your home, you will apply the regular deductible amount, which is likely lower than your earthquake deductible.
Hurricane deductibles tend to be higher than regular home insurance deductibles, and they’re usually percentage-based.
Flood insurance also needs to be purchased separately from your regular homeowners policy. You may have several options when choosing this type of deductible, including choosing between a fixed amount or a percentage-based amount. It will vary by state and insurance carrier. You can also select different deductible amounts for your home and belongings.
Wind and Hail
Wind and hail deductibles can be percentage-based or flat amounts. If you live in an area with frequent strong winds or hailstorms, like the Midwest or along Tornado Alley, $1,000 and $1,500 deductibles are common.
What amount should I choose for my deductible?
That depends on how much you’re willing to pay out of pocket for damages. Remember, the lower your deductible, the higher you’ll have to pay for your premium. When determining how to set your deductible amount, you’ll need to balance an affordable premium with a reasonable deductible.
If you need help deciding on the right deductible, or you’re shopping around for carriers that offer better discounts and incentives than your current provider, talk with one of our licensed agents. We can walk you through your existing policy or help you shop for a new one.
Contact us at any time. We’re happy to help!