An insurance deductible is the amount that you pay out of pocket before your homeowners insurance takes effect and covers an insurable loss. In the event of a covered claim, your deductible is deducted from your claims payment, and your insurer pays the balance up to the maximum limit stated in your policy.
For example, if you make a covered theft claim for $1,200 and your standard deductible is $500, your insurance company usually deducts your share of the claim – $500 – and pays the claim balance of $700.
As the homeowner and insured, you typically get to choose the amount of your deductible when you select your insurance policy. This gives you a certain amount of control over your insurance premium. Selecting a higher deductible usually results in a lower premium. You should note, however, that most insurers offer specific amounts to choose from and often require a minimum deductible.
One of the most important reasons that insurance companies require deductibles is that it reduces a risk to the company called a moral hazard. Because your home insurance protects you from major losses – and that’s a good thing! – but that may take away your incentive to avoid risky behavior. Insurance deductibles mean you carry some of the financial responsibility in a claim, and insurance companies hope that encourages you to reduce your chance of loss.
Deductibles also help insurance companies minimize the impact insurance claims have on their rates and financial stability. Making insurers responsible for the entirety of every loss could create an overwhelming number of claims that would drive up insurance rates while also straining the company’s resources to meet its responsibilities.
Your home insurance can have more than one deductible. For example, here are some common deductibles you’ll choose when buying a policy from Kin:
The standard deductible applies to most property claims each time you file. Some common examples include claims for theft, windstorms or fire.
They generally don’t apply when you file a liability claim. And as we noted above, some events have their own deductibles. Damage caused by those events does not trigger your standard deductible.
For example, let’s say you experience some damage during a storm that gets named by the National Weather Service. That’s often one indication that your hurricane deductible applies and not your AOP deductible. Other factors can also apply.
A deductible is expressed either as a fixed amount or a percentage of your dwelling coverage. Your deductible options may vary from insurer to insurer. To see your deductible, just flip to the declarations page of your home insurance policy.
Read your policy and ask your agent if you have any questions about how your deductible works. That way, you know what to expect when it’s time to file a claim.
The larger your deductible, the lower your premiums tend to be. That’s because you take on greater responsibility for the cost of a claim – and your settlement payout will be less, too.
Though it might be tempting to take on the largest deductible available to lower your premium payments, it’s important to choose one you can comfortably afford at the time of a claim.