Homeowners insurance protects the physical structure of your home and your personal belongings from common losses, like fire, theft, water damage, hailstorms, and even explosions. But in the event that you need to file a covered claim, your insurance company will likely require you to pay a deductible upfront.
What is a homeowners insurance deductible?
A homeowners insurance deductible is an out-of-pocket cost that you are required to pay toward a covered loss before your insurance company will reimburse you. Dwelling insurance and personal property insurance claims typically require a deductible, and liability claims and loss of use claims do not have a deductible.
Unlike your insurance premium, which is determined by your insurance company, you get to choose your deductible when you buy a policy. However, the deductible you choose has a direct impact on your homeowners insurance premium, which we’ll talk more about later.
How do home insurance deductibles work?
When you file a claim, either due to dwelling or personal property damage, your insurance company will evaluate the evidence, and if the loss is covered, approve your claim. But before they write you a check for the insured loss, you will pay the deductible. Rather than running your credit card or writing a check, your deductible will be subtracted from your total claim payout.
One important note about deductibles is that you are required to pay the deductible every time you file an approved claim. If you need to file multiple claims in a single year, you would have to pay the deductible every time.
The only exception is if your policy has a single deductible provision, in which case you would only have to pay one deductible if the same incident resulted in damage to your dwelling and personal property, for example.
Another thing we should mention is that your deductible only applies to covered claims. So if you file a claim for a loss that isn’t covered under your homeowners insurance policy, you won’t be required to pay the deductible because your insurance company isn’t giving you any money.
Types of homeowners insurance deductibles
There are several different types of deductibles, the main ones being a standard deductible, a percentage deductible, and a split deductible. Depending on your insurance company and where you live, you may or may not be able to choose which kind of deductible you get. Here’s a brief explanation of each one:
The most common type of deductible is the standard deductible, which is a set dollar amount that you have to pay towards every covered claim. According to the Insurance Information Institute (III), most homeowners insurance deductibles are between $500-$1,000, but you may be able to get a higher or lower deductible if your insurance provider allows it.
With a standard deductible, your insurance company will simply deduct the money from your claim payment. For example, if your deductible is $800 and you file a covered claim for $10,000, you would receive $9,200 from your insurance company to pay for home repairs, replace damaged personal items, etc.
Percentage deductibles are less common, and they are usually found in areas with a high risk of severe weather. Additionally, flood insurance and earthquake insurance providers will often underwrite your policy with a percentage deductible. Rather than being a set dollar amount, a percentage deductible is calculated as a certain percentage of your total dwelling insurance amount.
For example, let’s say that you have $100,000 in dwelling insurance and a 3% deductible. A wildfire destroys half of your home, causing an estimated $50,000 in damages. With a 3% deductible, you would have to pay $3,000 towards the loss, and your reimbursement from the insurance company would be $47,000.
A split deductible is a combination of a standard deductible and a percentage deductible. This type of deductible is sometimes used in the event of a natural disaster claim. For example, you might be required to pay a split deductible if your home is damaged or destroyed by a hurricane, a named storm, or an earthquake.
When should you choose a percentage-based deductible?
Homeowners don’t necessarily get to choose what type of deductible they get. However, if you are given the option, keep in mind that opting for a percentage-based deductible can help you get a lower premium. That’s the biggest advantage of a percentage-based deductible. But keep in mind that if you choose a percentage deductible to get a lower rate, your claim payouts will also be lower.
Homeowners disaster deductibles
Many natural disasters, like hurricanes and tornadoes, are covered by your standard home insurance policy. However, you might be required to pay a specific disaster deductible if one of these events damages or destroys your home.
Typically, disaster deductibles are a percentage of your home’s insured value, and the figure tends to be high. Here are some of the most common disaster deductibles to be aware of, and how they work:
A hurricane deductible is usually triggered if an approaching storm becomes classified as a named storm or a hurricane of a certain category by the National Weather Service. Every insurance company has different storm triggers, and it’s heavily dependent on where you live. If the named storm rolls through and causes extensive damage, you would be required to pay a hurricane deductible.
Wind/hail deductibles are similar to hurricane deductibles, but they apply to tornadoes and severe hailstorms. You’ll find wind/hail deductibles in the midwest, particularly in the “Tornado Alley” states, like Oklahoma, Kansas, Nebraska, Iowa, South Dakota, and parts of Texas.
Flood insurance deductibles vary. Depending on your flood insurance underwriter, you’ll either pay a standard or a percentage deductible in the event that your home gets damaged by a flood. If your home is located in a high-risk flood zone, your policy may automatically include a percentage-based deductible.
Earthquake insurance deductibles are almost always a percentage. According to the III, earthquake insurance deductibles are usually set at 2%-20% of your home’s replacement value. If you live in a high-risk earthquake state, like Nevada, expect to pay a percentage around 10% for your deductible.
How your deductible affects your premium
The homeowners insurance deductible you choose will affect your premium. The higher your deductible is, the lower your annual premium will be, and vice versa. If you are looking to get a more affordable home insurance policy, raising your deductible is one way to do that. However, you should consider other ways to save money on your home insurance, like taking advantage of discounts and paying your annual premium in full, before you increase the deductible.
How to choose the right deductible
Choosing the right deductible is important. No one purchases home insurance thinking they are going to need to file a claim, but it happens. Don’t be tempted to choose a very high deductible just to get a lower rate. If you ever did need to file a claim, having a high deductible could significantly affect your payout, leaving you to pay for some of the damages out-of-pocket.
When you set your deductible, consider how much you could afford to pay in the event of a claim. If you would need the biggest payout possible from your insurance company, keep your deductible low. If you could afford to pay more toward a covered claim and care more about having a lower monthly premium, you might want to choose a higher deductible.
What should be the deductible on my home insurance?
The deductible on your home insurance policy should be an amount that you can comfortably afford in the event that you need to file a claim. If you are trying to keep your monthly premium low, consider raising your deductible, but only if you can pay a higher amount toward a covered loss.
What is the standard deductible for homeowners insurance?
According to the III, a standard home insurance deductible is between $500-$1,000. However, you might be able to get a higher or lower deductible depending on your insurance company. Additionally, some policies have a percentage-based deductible, which can vary more significantly.
Is a $2,500 deductible good home insurance?
It depends. If the deductible on your home insurance policy is $2,500, you will probably be paying a low monthly rate. But if you needed to file a claim, your payout would be $2,500 less than the cost of repairs. For instance, if water damage destroyed your garage and caused $6,000 in damages, you would only receive $4,500 from the insurance company, and you would have to pay the $2,500 difference out-of-pocket.
Should I get a high deductible homeowners insurance?
You should only get a high homeowners insurance deductible if you want a lower annual or monthly premium. That is the only benefit of choosing a high deductible.
Do I have to pay my homeowners deductible?
Yes, you are required to pay your deductible when you file a covered homeowners insurance claim. Keep in mind that paying your deductible is never really a choice, like paying your monthly premium. When you receive compensation from your insurance company after a covered loss, your deductible is automatically subtracted from the total payout.