Homeowners Insurance Deductible

How to Choose the Right One

Deductibles are a vital part of homeowners insurance

Homeowners' insurance deductibles are an essential part of a home insurance policy.

A deductible decides how much money you will have to pay when you file a claim and affects your policy's cost. Typically, the higher your homeowners' insurance deductible, the lower your premium. However, a lower deductible means you'll pay more in premiums.

So it's crucial to recognize the trade-off and choose a homeowner's insurance deductible that makes sense for you and your finances.

What is a Homeowners Insurance Deductible?

A homeowners insurance deductible is the amount a homeowner has to pay toward a claim before the insurer pays its part.

Suppose you have a $500 deductible. Fire causes $12,000 worth of damage. In that case, you would have to pay $500, and the insurer would pick up the remaining $11,500.

If your home incurs $500 in damage or less, your insurer won't pay anything. Rather, you'd pay for all of the repairs. In this case, you shouldn't even file a claim.

This same home insurance deductible amount (sometimes referred to as an "all peril" deductible) applies to most property claims, whether it's fire, theft, or burst pipes. Other types of home insurance claims, like ones against your liability coverage or guest medical, rarely come with deductibles.

There are 3 main types of home insurance deductible, including dollar-amount, percentage-based and split homeowners insurance deductibles.

1.  A Dollar Amount Your deductible is a particular amount that you must pay before your insurer pays its portion. For instance, you have a small kitchen fire, and the damages are $3,000. If your deductible is $1,000, you pay that amount, and your homeowners' insurance company takes care of the remaining $2,000.
2. A Percentage  In this case, your deductible is a percentage of your policy's total coverage amount. If your home is insured for $200,000 and your deductible is 2%, you'd have to pay the first $4,000 of any claim (2% of $200,000 = $4,000).
3. A split This is a hybrid of the first two. A dollar amount applies to most claims, but a percentage can be triggered by specific events, such as a hurricane or earthquake (see below).

When Do Deductibles Apply?

Homeowners insurance deductibles differ from those of health insurance

It's vital to acknowledge that auto and home insurance deductibles differ from health plans. Usually, health insurance has an annual deductible, and, once you've achieved its threshold, the insurer pays for everything else that year, subject to co-payments and co-insurance.

With auto and home insurance, the deductible pertains to every claim, regardless of how many you make during a year. So, if you live in a place that's especially prone to risks, you may have to raid your savings multiple times each year. Those additional risks include hurricanes, tornadoes, and earthquakes.

There's some good news if you live in Florida, though. The law there enables only one deductible each hurricane season for that particular risk.

Resources and References

• Homeowner Insurance Summary