Every time you file a home insurance claim, you pay a deductible. The deductible is the portion of the damage-related expenses you’re responsible for paying out of pocket. Once you pay the deductible, your home insurance company covers the remainder of the cost.
One of the most important things to know about home insurance deductibles is that they have a direct impact on your premium. Choosing a higher deductible will result in a lower annual premium, while a lower deductible will result in a higher premium.
In this article, we’ll explain the basics of home insurance deductibles, including how they work and what to consider when choosing a deductible.
When deductibles are applied
A deductible is applied when you file a claim under the following types of coverage included in a home insurance policy:
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Other structures coverage
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Personal property insurance
In some cases, homeowners may have to pay a separate deductible for certain types of damage, such as hurricane or wind damage.
Deductibles aren’t usually required when you have a personal liability or medical payments claim.
Types of deductibles
The type of home insurance deductible you have to pay depends on your insurance company, policy, and location. Home insurance deductibles may be either a flat rate or a percentage-based amount.
Flat deductibles
In many cases, property insurance deductibles are fixed and range from as little as $500 to $10,000 or more. It doesn’t matter how big or small the loss is—you’ll always pay the same amount when you file a claim.
Here’s how a flat deductible works. Let’s say your home is destroyed in a fire, and the insurance company estimates that it will cost $400,000 to rebuild it, and you have a $5,000 deductible. In this case, you would pay $5,000 out of pocket, and your home insurance company would cover the remaining $395,000.
Percentage-based deductibles
Some insurance companies use percentage-based deductibles. In this case, the deductible is a percentage, such as 2% or 5%, of the policy’s dwelling coverage. This is often the case with windstorms and hurricanes, especially in areas where these disasters are more predictable.
Windstorm deductibles often range from 1% to 10%. If your home was damaged in a windstorm and it cost $200,000 to rebuild it, you might have to pay anywhere from $2,000 to $20,000 out of pocket toward the loss.
How deductibles affect your home insurance premium
Your homeowners insurance deductible can increase or decrease your policy premium. If you choose a higher deductible, you’ll pay a lower monthly premium. However, you’ll be responsible for higher out-of-pocket expenses after a claim.
On the other hand, if you select a lower deductible, you’ll pay a higher premium, but you’ll have lower upfront costs after a claim.
If you’re looking for ways to save money on home insurance, raising your deductibles may be worth considering. However, keep in mind that you’ll have to pay for a larger portion of any claims you file.
What to consider when choosing a deductible
When you’re choosing a home insurance deductible, there are a few things to consider.
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How much money could you comfortably afford to pay out of pocket? After a covered loss, you’re responsible for paying your policy deductible. If you couldn’t afford to pay a few thousand dollars, it might be best to choose a low deductible.
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How much do you want to spend on homeowners insurance? Higher deductibles have lower premiums, and vice versa. If you want to pay the lowest home insurance premium and don’t mind paying more if you have a claim, choosing a higher deductible could be a good option.
Remember that you can adjust your deductible up or down at any point during your policy period. If your financial situation changes, you can always choose a different deductible that’s a better fit for your needs.
Learn more: Is a higher or lower deductible better?