Home Insurance Deductibles

How To Choose Your Homeowner's Insurance Deductible

(How low can you go?)

Home Insurance deductibles

Choosing your homeowners insurance deductible is an important financial decision. In this article, we’ll help you to understand the basics. Our independent insurance agents can help you choose your homeowners insurance deductible wisely.

What Are Homeowners Insurance Deductibles?

A deductible is the portion of an insurance claim that you pay out of your pocket. A common claim for homeowners insurance is water damage from an appliance or a burst pipe. 

If the cost to fix the damage was $10,000 and the deductible is $2,000, the insurance company would pay $8,000. You would pay $2,000 directly to the contractor.

Types of Homeowners Insurance Deductibles

There are two types of homeowners insurance deductibles. 

  • Flat amount (all perils) 

The flat amount type of deductible is a specific dollar amount, for example $1,000. The flat amount deductible usually applies to most of the events or “perils” that are covered by the policy such as fire, theft, water damage, etc.

  • Percentage

The percentage type of deductible is calculated as a percentage of the insured value of your home. The insured value of your home is stated in your policy. 

A percentage deductible is usually associated with coverage for disasters such as hurricanes, wind and hail, floods, and earthquake damage. If you live in an area that is prone to disasters such as hurricanes, there may be special rules that trigger the percentage deductible.

The liability portion of your homeowners insurance usually does not have a deductible.  Other coverages, such as endorsements and floaters for high-value items, may have their own deductibles.

How Do Homeowners Insurance Deductibles Work?

Your homeowners insurance deductible is the same no matter how big or small your claim is. If you have a $1,000 deductible, you will pay $1,000 whether the claim is $3,000 or $30,000.

The homeowners insurance deductible applies to every claim. If you have a $1,000 deductible and 2 separate claims, you will pay $1,000 for each claim.

What Is the Average Homeowners Insurance Deductible?

Homeowners Insurance deductibles are commonly between $500 and $2,000. Hurricane and other disaster coverage deductibles are typically between 1% and 5% of the insured value of your home. 

When Are Homeowners Insurance Deductibles Paid?

You will pay the deductible amount directly to the contractor when the work is completed. The insurance company will pay the balance to the contractor.

Why Do Homeowners Insurance Policies Have Deductibles?

Deductibles lower the insurance company’s cost of administering claims. 

Insurance companies offer premium discounts to encourage purchasing homeowners policies with a deductible. If an insurance company offers a $0 deductible  policy, the premium will typically be substantially higher than a policy with a deductible.

How Does the Deductible Change the Premium?

The higher the deductible, the lower the premium. Some insurance companies do offer a $0 dollar deductible. However, the premiums are typically significantly higher than policies with deductibles.

How much the amount of the deductible changes the premium can vary significantly depending on the company, the amount of the coverage, and where you are located. That is why you should always look at quotes with different deductibles from multiple companies when you are purchasing homeowners insurance.

What If I Can’t Afford To Pay the Deductible?

  • You should carefully consider how much your emergency fund can cover when you purchase your homeowners insurance, especially when the deductible is a percentage of the insured value of your home. 
  • If your emergency fund is not enough, consider what lines of credit are available to you, like a home equity loan. 
  • Put a plan in place before disaster strikes. 

Are Deductibles Tax-Deductible?

Deductibles are not paid to the insurance company. The insurance company pays the claim less the deductible to the contractor, and you pay the balance. Casualty losses may be deductible to the extent of the claim not covered by the insurance company. If you do have a loss, you should consult with your professional tax advisor.

Is Raising the Deductible Worth the Savings?

It depends on the your financial position, and the amount of the savings. If the difference between a $1,000 and $2,500 deductible is $125, is that worth the additional $1,500 exposure in the event of a claim?  

If you are not comfortable with having to pay a higher deductible in the event of a claim, paying the higher premium may be a better choice. 

It’s important to keep in mind that your deductible applies to every claim made. If you have a high deductible and you happen to have multiple claims, the deductible could potentially be a significant expense.

How To Choose Your Homeowners Insurance Deductible

You should consider three things when making your decision:

  • Your financial condition: Could you absorb the difference between the higher and lower deductible in the event of a claim? If you had multiple claims, how would the additional expense impact you?
  • Your risk tolerance: If you selected the higher deductible, would the additional exposure worry you?
  • Savings: Is the savings between the higher and lower deductibles meaningful to you?

Your Local Independent Insurance Agent Can Help You Make a Smart Choice

Your local independent insurance agent has the expertise and experience to help you. Plus, independent insurance agents work for you and not one insurance provider.  

They’re the only agents who can check policies from multiple carriers to find the right coverage at the best price. That is especially important when you are trying to determine what deductible is best for you. 

If you do have a claim, your independent agent will be there to help you. The outcome of home insurance claims can be strongly impacted by how the process is approached and handled.

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Alicia Rosier Stevens CIC