Homeowners Insurance Deductible
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What Is a Homeowners Insurance Deductible?
Homeowners insurance deductible is a critical aspect of a homeowners insurance policy. It refers to the amount a policyholder pays out-of-pocket on a claim before the insurance company pays. Typically, the deductible ranges from $500 to $2,000.
Your choice of deductible amount highly affects the cost of your homeowners insurance policy and premium. A lower deductible would lead to higher premiums, while a higher deductible would lower premiums.
Understanding Homeowners Insurance Deductibles
Homeowners insurance deductible is the amount paid out-of-pocket on a claim before an insurance company pays. Depending on the type of deductible stated in the policy’s terms of coverage, a policyholder may have to pay a set amount or percentage.
It’s important to note that this is a separate fee and isn’t the same as insurance premiums. While premiums are paid regularly, deductibles are paid on a per-claim basis. That said, a deductible may not always be applied. In certain cases, if the cost of damage is less than or equal to the policyholder’s deductible, the policyholder will likely have to cover the expense out-of-pocket.
Homeowners insurance deductible is also different from co-insurance. Depending on the insurance provider, a policy may have a co-insurance clause. It prevents underinsurance by requiring the policyholder to carry coverage equal to a certain percentage of their home’s value. Failure to comply with the co-insurance amount would lead to a penalty, which will be deducted from the claims settlement.
When looking for the best homeowners insurance policy, consider all expenses. These include the deductible, insurance premium and co-insurance. Doing this can help you in managing your expenses and ensure protection.
Homeowners insurance deductible is a per-claim expense and is a separate fee from insurance premiums. Your deductible amount can affect the cost of your premium. Having a higher deductible leads to lower premiums. That means you will have lower monthly insurance expenses. However, you will have to pay more out-of-pocket if you make an insurance claim.
Types of Homeowners Insurance Deductibles
Before deciding on your deductible, it’s important to understand how it’s calculated. Generally, insurers implement two forms of homeowners insurance deductibles — standard and percentage-based. Depending on where you live and the insurance provider, you may or may not be able to choose the type of deductible for your policy.
This deductible refers to a fixed dollar amount. This amount is set and doesn’t change despite the cost of the covered damage.
On average, the standard deductible ranges from $500 to $2,000. However, it can be higher or lower depending on the agreement between the insurance company and the policyholder.
With this deductible form, the insurance provider deducts the set amount from the claim payment. For instance, if your deductible is $500 and you file a covered claim for $5,000, your insurance provider will pay $4,500.
This deductible type is based on an agreed-upon percentage. The percentage may vary depending on the insurance company and location. Typically, it ranges from 1% to 10%. This deductible is more common in disaster deductibles.
For example, if you have a 2% deductible and $100,000 coverage, you will have to pay $2,000 when you make an insurance claim. If the estimated cost to repair cover damages is $30,000, you will only receive $28,000 from your insurance company.
Choosing the right home insurance, deductible and premiums can help you maintain the healthy state of your finances. The right deductible for you should be within your budget and not lead to financial hardship if you have to pay it. Make sure you compare deductible quotes from at least three insurers. This way, you will know how much your insurance premium would cost.
Deductibles for Acts of God: Natural Disasters That Impact Your Home
Acts of God are disastrous events that are outside human control. These incidents involve unavoidable natural causes. Typically, these types of disasters have separate deductible rules. That said, not all-natural disasters are covered by standard homeowners insurance. While wind, hail and hurricane damage are usually covered, flood and earthquake coverage may be limited, requiring additional coverage for some damages.
Windstorm or wind/hail
Home insurance policies in areas that often experience severe windstorms or hail usually cover damages from wind or hail events. In most cases, deductibles for wind/hail-related claims are percentage-based and are 1%–5%.
States prone to hurricanes often have special deductibles applicable to homeowners insurance policies. Hurricane deductibles may be a fixed dollar amount but are typically percentage-based ranging from 1%–10%.
Hurricane deductible only applies if the claim falls under the insurance company’s selected trigger. While the definition of triggers may vary per state, they typically include hurricanes and storms officially named by the National Weather Service (NWS) or National Hurricane Center (NHC).
Earthquake insurance tends to be additional coverage. It also has a separate deductible, which is typically percentage-based. Depending on the state and insurance provider, earthquake deductibles generally are 2%–20% of the home’s replacement value.
Flood insurance is separate coverage, so it has a separate deductible. Depending on the state and insurance company, the flood insurance deductible can be a fixed dollar amount or percentage-based. Policyholders can also opt to have different deductibles for their home’s structure and contents. Generally, flood insurance is either from a private insurer or the National Flood Insurance Program.
Depending on where you live, natural disaster risks may vary. Remember to evaluate weather conditions in your area to determine what type of disaster coverage you may need.
FAQs for Homeowners Insurance Deductibles
Understanding homeowners insurance deductible is important as it plays a big part in policy costs. Learn more about deductibles, coverage and costs through some frequently asked questions (FAQs) about this topic.
Your deductible is an important aspect to consider when choosing the best homeowners insurance policy. MoneyGeek asked industry experts to share their insights to help you better understand deductibles and its role in insurance.
- Why do policy holders still need to pay deductibles if they’re already paying for premiums?
- What courses of action can a policy holder take on the event that they can’t pay their deductible for an insurance claim?
- When is it best to take on a lower/higher homeowners insurance deductible?
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Founder & CEO of Seniors Life Insurance Finder
Licensed/Bonded Public Insurance Adjuster and Founder of Florida Allstar Public Adjusting, Inc.
Understanding homeowners insurance can help you determine what type of deductible may be best for your needs. Explore these types of insurance topics in the resources below.
- A Guide for How to Switch Home Insurance Companies. Learn tips on switching insurance companies and finding out when it’s best to change insurers.
- Average Cost of Home Insurance: Find out how much homeowners insurance coverage typically costs, what affects premium rates and how much it may cost you.
- Cheap Homeowners Insurance: Compare insurance quotes and determine which companies offer the cheapest rates for different homeowner profiles.
- Home Insurance Calculator: Determine the factors affecting home insurance prices and get an estimate for suitable coverage.
- How to Buy Homeowners Insurance: Find the right homeowners insurance policy for your needs through this simple step-by-step guide.
- Navigating Climate Change and Insurance as a Homeowner. Learn the impacts of climate change on homeowners and get tips on climate-proofing your home.
- States With the Most (And Least) Climate Risk Today. Determine your state’s climate risk to know what risks you face as a homeowner.
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- Internal Revenue Service. "Publication 547 (2021), Casualties, Disasters, and Thefts." Accessed May 13, 2022.
- Internal Revenue Service. "Topic No. 515 Casualty, Disaster, and Theft Losses." Accessed May 13, 2022.
- National Association of Insurance Commissioners. "Hurricane Deductibles." Accessed May 13, 2022.