As a homeowner, you already know that you need home insurance. But do you know what your deductible is or understand how it impacts your insurance policy?
Even if you have a good sense of what your home insurance deductible is, we’re going to dive even deeper in this post to cover:
Your deductible is the amount of money you have to pay out of pocket before your insurance company starts paying for any damage to your home.
Said another way: when your insurance company pays out for a covered claim, they’ll deduct the amount of the homeowner's deductible from the total amount of damage incurred. As the homeowner, you may also have to first pay the deductible to receive the remaining compensation from the insurance company.
For insurance companies, having to pay a deductible motivates homeowners to be more cautious with their property, helping them avoid potentially costly repairs in the future.
For homeowners, since deductible costs are often relatively low, most owners can afford to pay them out-of-pocket if necessary. Additionally, there are different deductible amounts available for each insurance plan, so homeowners can choose a deductible that’s affordable. The higher the deductible, generally the lower the insurance premium will be.
Homeowners insurance deductibles are an effective way to help protect properties and save money for homeowners.
The standard or flat homeowner insurance deductible for most homeowners is a fixed dollar amount between $500 and $2,500. In states with high insurance premiums like Florida, it is becoming more common for homeowners to increase their deductible to $5,000 in order to reduce the premium.
Regardless of what type of damage occurs to your home or property, you’ll be responsible for this set amount. In other words, the standard or flat deductible is the amount that you’d have to pay for most claims, including minor and major incidents such as water damage from a plumbing leak or damage caused by a fire.
While many people find this deductible convenient and easy to manage, others may prefer to opt for a lower or higher deductible depending on their risk tolerance and budget.
Ultimately, it’s up to each homeowner to decide which deductible is right. But whatever decision you make, it’s essential to keep in mind the impact that homeowner insurance deductibles can have on your overall protection and financial security.
Here’s an example:
Let’s say you had a covered peril, such as a fire, damage your home. You have a $500 deductible and your insurance carrier determines there is a total of $14,000 of total covered damage and loss. Your deductible would be subtracted from the total damage and you’d be given a check for $13,500, leaving you responsible for the remaining $500 deductible.
In some cases, you might have a percentage deductible for your homeowners insurance. In the event of covered damage, you’d be responsible for a certain percentage of the damage and your policy would pay out the remainder.
Typically, percentage deductibles are applied to wind, hail, or storm damage claims. In most cases, these deductibles are set as a percentage of the total value of the insured property. Generally speaking, homeowner insurance deductibles will range from 1-10% of the total value of the property covered in the policy.
Here’s an example:
If your home is damaged by a hurricane and your homeowner insurance wind deductible is 2%, you would be responsible for paying 2% of the insured value (normally Coverage A) of your home. So if your home is insured for $500,000, you are responsible for paying $10,000 of the loss. If the loss does not exceed $10,000, the insurance company may not have any responsibility to make a payment. Some states have an annual deductible for windstorm, meaning once you meet your $10,000 obligation in the example, the insurance company pays for future damages from the first dollar for the remainder of that calendar year hurricane season. This maximum annual deductible example is most common in states that are prone to hurricanes. It is important to talk to your insurance company or agent to understand how your deductible is applied and proper claim reporting procedures.
Your homeowners insurance deductible is an excellent gauge for assessing whether an insurance claim is worthwhile. For instance, if damage — if even from a covered peril — amounts to equal or less than your deductible, filing a claim won’t be worthwhile.
If the covered damage is worth an insurance claim, simply submit your claim to your insurance provider (this can be done over the phone or online in many cases). Then, once the claim is reviewed and accepted, you’ll receive a check for the covered damage (minus your deductible).
At this point, you’ll be responsible for paying the contractor, company, or even completing the work yourself using the funds you’ve received. You’ll also be responsible for paying for your deductible portion out-of-pocket.
In some cases, your insurance company may work directly with the restoration, roofing, or other contracting company, so your carrier will request you pay your deductible directly to them.
Homeowner insurance deductibles and premiums are very closely related.
A higher deductible will result in a lower premium; a lower homeowner insurance deductible will generally result in a higher premium. When you sign up for your insurance policy, this is the time to choose the deductible and premium that make the most sense for you and your family.
Ultimately, it’s essential to ensure you have enough available funds to cover your deductible should you need to file a claim.
Choose a deductible you are comfortable with and make sure you have that amount saved in case of an emergency. (Also, remember that your premium may increase after filing one or two claims, regardless of your deductible.)
The best way to choose the right deductible is to consider both the deductible and premium costs. What amount can you reasonably afford in the short-term for both deductible and premium, should you need to file a claim?
While a $500 deductible may be more ideal, the premium may be more than you’re able to budget per month or year.
Choosing a $1,000 deductible, however, might still be reasonable as a potential deductible payment and also provide a more economical premium.
Now that you understand how your homeowners insurance deductible affects your policy and premium, consider what amount fits best for your home and budget.
If you need help finding the best homeowners insurance coverage for the best price (and reasonable deductibles), start by speaking to a SimplyIOA agent at 833.872.4467 or get a homeowners insurance quote online now.