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Everything you need to know about homeowners insurance deductibles, how they work, and how choosing the right deductible can save you money.
Just like your auto insurance, health insurance and other policies that protect you, your loved ones and your belongings, your homeowners insurance policy comes with a deductible. Determining how high or low your home insurance deductible should be is a little bit different for each insurance type, though.
When it comes to homeowners insurance, your bottom line is the most important factor in determining your deductible – the out-of-pocket expenses you can afford should you need to file an insurance claim. (We can help you pull homeowners insurance quotes. Here's everything you need to know about homeowners insurance deductibles and how to choose the right amount based on your needs.
Like car insurance, you pay your deductible every time you file a home insurance claim. The only exception to this is in Florida, where you pay hurricane deductibles per season rather than for each individual storm.
If a claim is filed and it involves two or more components – let’s say, hazard coverage (involving your house or personal property) and liability coverage (a guest in your home was injured during said hazard) – you only need to pay the deductible for the hazard claim. If the guest sued at a later date and your liability coverage was needed, the deductible you already paid would cover both claims.
There are two home insurance deductible-types on your standard policy – dollar amount deductibles and percentage deductibles. In both cases, it’s the amount taken off the top of a claim payment; after you pay your deductible, the insurance company pays out the remainder of the claim.
A dollar amount deductible is the fixed dollar amount that you, the homeowner, pay out-of-pocket when you file a claim for a covered loss. There are usually three dollar amount deductibles to choose from: $500, $1,000 and $1,500, with the $1,000 option being the most popular deductible option.
If you have a $1,000 deductible and you file a claim because a tree fell on your house and it's determined it costs $6,500 to fix the damages, you will pay the first $1,000 of the repair costs and your insurance company will pay you the remaining $5,500 to cover the remaining costs.
Percentage deductibles are specific to homeowners policies and are calculated based on the percentage of your home’s insured value. That means if your house is insured for $200,000 and your policy has a 1% deductible, $2,000 is the amount that would be deducted from any claim payment. If your total loss was $15,000, the coverage amount would be $13,000.
The first thing to consider when determining your deductible is how it will affect your premiums. The higher your deductible, the lower your premiums, and vice-versa.
According to William Davis of the Insurance Information Institute, limiting your out of pocket expenses is virtually the sole reason for choosing a lower deductible policy, otherwise, its up to the policyholder and their circumstances.
"There really aren't any other benefits other than having to pay less out of pocket in the event of a loss," he said. "But policyholders should discuss their individual situation and insurance needs with their company representative or agent to ensure they understand their coverages, the deductibles that are available and how those things will affect them in the event of a loss."
He also noted that deductibles can be a very important issue in some areas, particularly in hurricane-prone places.
"Policyholders need to determine how their state's hurricane deductibles – which are a percentage of the home's value instead of a set dollar amount (they vary by state) – will impact their ability to handle the total amount they would have to pay out of their own pocket in the event of a loss."
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Deductibles can vary depending on what type of storm caused the damage or loss to your home or personal property. While hurricanes, wind, and hail are covered by your standard homeowners insurance policy, they have their own deductible rules if a disaster strikes involving those specific perils. Same goes for floods and earthquakes, which are not covered by homeowners insurance.
In hurricane-prone areas, like Florida, special deductibles may be applied to claims if it was determined by the insurer that the damage or covered loss was a result of a hurricane.
What are the criteria for determining if a hurricane caused the damage? Most home insurance companies will wait until an official ruling from the National Weather Service (NWS) and whether they name the storm, declare a hurricane watch or warning, or define the storm by the intensity of waves and wind speed.
Hurricane deductibles are higher than standard homeowners insurance policy deductibles, as they require a percentage of your policy limit rather than a fixed dollar amount. There are certain states where you can opt out of paying a percentage deductible, but that means paying a high premium instead.
Wind and hail deductibles function very similarly as hurricane deductibles in that they’re paid mostly in percentages rather than fixed dollar amounts. These types of deductibles are the standard in Tornado Alley (Kansas, Oklahoma, Texas, and Nebraska) and certain Midwestern states like Ohio.
Flood insurance deductibles
Flood insurance deductibles vary by state and insurance company, and are typically available in both dollar amount and percentage options.
Earthquake insurance has percentage deductibles that can range anywhere from 2% to 20% of your home’s replacement value. States with a high number of earthquakes (Oregon, Utah, and Nevada) often have deductible minimums set at about 10%. California differs slightly, as the standard California Earthquake Authority (CEA) policy sets the dwelling coverage minimum at 15% and 10% for “other structures” such as sheds and garages.
Raising your deductible can have a significant impact on the premiums you pay each year. In general, a higher deductible – let's say $1,000 per incident instead of $500 – can result in lower, known out-of-pocket expenses throughout the year. It could, however, cause you higher, unknown expenses in the event you have to file a claim. Or two. Or three.
Of course, there are ways to reduce your premiums beyond deciding what your deductible should be. There are plenty of discounts you'll want to be familiar with, like bundling your homeowners policy with your auto policies, autopay discounts and many others. You can learn more about what affects your homeowners insurance cost here.
To determine what deductibles are best for you (and what discounts you may qualify for), it's a good idea to talk to an independent insurance agent who can help you compare policies from a variety of insurance companies, find the right limits of coverage for the value of your home, choose whether to choose replacement cost or actual cash value and other decisions specific to your home and your financial situation.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.