Everything you need to know about insurance basics, like coverage types, limits, cost and more.
Understanding Home Insurance Deductibles
Along with understanding how different types of coverage give your home the protection it needs, it's important to understand how a homeowners insurance deductible is part of your policy. This way you can better financially prepare for the unexpected.
What is a deductible?
The amount of money you'll pay out-of-pocket before your insurance company will pay on the claim.
Need more help with basic insurance terms? Check out our insurance glossary.
Home Insurance Deductible FAQs
There are a number of types of homeowners insurance deductibles, but the two most common are:
Flat deductibles. A flat deductible is a fixed dollar amount that you’ll pay out of pocket for a covered loss. Technically, your insurance company subtracts the deductible from the amount claimed and that’s the portion of the claim you’ll pay.
For example, if your deductible is $1,000 and you file a claim because a hail storm damages your siding and it’s determined the cost to fix the damage is $9,000, your insurance company will pay out $8,000 for the claim and you’ll cover the remaining $1,000.
Percentage deductibles. You can choose to have a percentage deductible, which means your deductible would be a percentage of the total coverage amount on your policy.
For example, if your home is insured for $300,000 and your deductible is 2 percent, you’d pay $6,000 of the claim ($300,000 multiplied by 2 percent)
Consider this, if you have a lower deductible, you’ll pay less out of pocket in the event you file a claim. But you’re guaranteed to pay more in premiums over a longer period of time. If you have a higher deductible, you’ll pay more if you have a covered claim, but your premiums will be lower each month.
When choosing your deductible amount, compare what you can reasonably afford in the short term versus the long term. Would you prefer to save more each month on premiums and pay out more if you file a claim, or pay more per premium and less for a covered claim? And consider what your annual household income is as well as other out-of-pocket expenses you’ll be expecting during the year. Choosing your deductible comes down to what you personally can afford in the short term or long term.
Many people opt for a higher deductible since this lowers the guaranteed amount they pay for their premium, whereas the deductible would only be paid if they file a claim. If you do choose a higher deductible, consider setting aside money specifically to cover your deductible in the event you have to file a claim. This way you’re financially prepared and not emptying your savings account that you planned on using for other emergencies.
When you hear the term deductible, your health plan or auto insurance might come to mind. Both of these types of insurance also have deductibles, but it’s important to note that a health insurance deductible works differently than your auto or home insurance deductibles.
Usually, your health insurance comes with an annual deductible amount, and once that amount is reached, your insurance provider will cover any other claims you make that year (subject to co-payments and co-insurance). Auto and home insurance also have deductibles, but they apply for every single claim you make, no matter how many you make in a year.
Typically, homeowners choose a $1,000 deductible (for flat deductibles), with $500 and $2,000 also being common amounts. Though those are the most standard deductible amounts selected, you can opt for even higher deductibles to save more on your premium. Again, it’s what you can reasonably afford to pay given you file a claim and have to pay out of pocket.
Low Deductibles vs. High Deductibles
Choosing your deductible comes down to what you personally can afford in the short term or long term. Here are some things to consider when making your decision.
- Pay less out-of-pocket in the event you file a claim
- Pay more in premiums over a longer period of time
- Pay more each month for premiums
- Be able to afford paying more up front in monthly premiums.
- Pay more out of pocket if you have a claim
- Premiums will be lower each month
- May need to save emergency money in case of a claim to cover higher deductible
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