Understanding homeowners insurance deductibles

Everything you need to know about homeowners insurance deductibles, how they work, and how choosing the right deductible can save you money.

Pat Howard 1600

Pat Howard

Published December 10, 2019

KEY TAKEAWAYS

  • A deductible is the amount that you pay out of pocket for an insurance claim before your insurance company pays for the remainder of the loss

  • Usually a higher deductible means lower insurance premiums, and a lower deductible means higher insurance premiums

  • Most homeowners insurance policies include two types of deductibles: a standard (typically $500 to $2,000) for most causes of loss, and percentage deductibles (typically 1% to 5%) for wind/hail or hurricane-related damage

A homeowners insurance deductible is the amount of money that you’re responsible for paying before your insurance company will pay you for an insured loss. The subsequent claim payment that you receive from your insurance company is the total damage or loss amount minus your deductible. That means if your deductible is $1,000 and your home sustains $50,000 in insured damage, your insurance company will pay you $49,000 after you pay your deductible.

The amount you pay in homeowners insurance premiums — your monthly or annual insurance payment — is directly correlated with how high or low you set your deductible, so when you set your deductible you’re weighing a couple of things: How much you can afford to pay in insurance payments versus how much you can afford to pay out of pocket if something bad happens. A high deductible gives you a lower insurance premium, but it could also prove to be too big of a hit to your bank account when it comes time to file a claim.

In this article:

What does a homeowners insurance deductible mean?

A deductible is the amount that you pay out of pocket for an insurance claim before your homeowners insurance company will pay out for the remainder of the loss.

You pay your deductible on a per-claim basis, meaning if your home is damaged in two different storms that were a month apart, you’d have to pay two separate deductibles. The only exception to this is in the state of Florida, where, if your home is damaged in a hurricane, you pay a hurricane deductible per season rather than for each individual storm. That deductible would then apply to any subsequent hurricane damage until the end of the season, which runs June through November.

If a single claim involves two or more property coverage components, you only need to pay one deductible. That means if both your home’s structure, your garage, and your personal property are damaged by a house fire, you may report your home’s structural damage at the outset and personal property loss at a later date, but you’d only need to pay that out-of-pocket deductible once.

Do you have to pay a deductible for the liability portions of your policy?

In addition to covering your home, personal property and living expenses, your policy also covers your personal liability expenses and pays for injured guests’ medical payments in the event of an accident in your home. But unlike your property coverages, you don’t pay a deductible on liability claims.

What about homeowners insurance endorsements?

If your policy contains additional coverage endorsements like equipment breakdown coverage, service line coverage, or water backup coverage, you may have to pay a small deductible for individual claims involving those coverages (some companies cap endorsement deductibles at $250).

Types of homeowners insurance deductibles

There are two types of deductibles you’ll see on the declarations page of your homeowners insurance policy: one is a standard dollar amount (for most perils) and one is a specified percentage of your home’s insured value (for wind/hail or hurricane-related claims). 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.

Standard deductible

This is the standard, fixed-dollar amount deductible that you pay out of pocket when you file a claim for a covered loss. A standard homeowners insurance policy deductible is usually in the range of $500 to $2,000, although lower and higher deductible home insurance plans are also common.

Dollar amount deductibles work like this: if your deductible is $1,000 and you file a roof claim totaling $6,500 in damages, you pay the first $1,000 of the repair costs out of pocket before your insurance company sends you a check for the remaining $5,500.

Percentage deductibles

Percentage deductibles are specific to windstorm, named storm, and hurricane-related claims and are calculated based on the percentage (usually 1% to 10%) of your home’s insured value, or your total dwelling coverage amount. Meaning, if your house is insured for $200,000 and your policy has a 1% hurricane deductible, $2,000 would be deducted from the claim payment. If the damage amounted to $15,000, your reimbursement would be $13,000 after you pay your deductible.

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What are disaster deductibles?

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 flood and earthquake insurance in the event of a flood or earthquake disaster.

Hurricane and named storm deductibles

In hurricane-prone regions of the country, like Florida and many oceanside counties on the Atlantic coast, special hurricane deductibles may be “triggered” and applied to property damage claims caused by a named storm or hurricane.

What’s the criteria for companies triggering a named storm or hurricane deductible? While it varies from state to state based on states’ insurance regulations, insurance companies usually need to wait until a storm or hurricane has been officially declared or named by the National Weather Service.

If the chance of your home being damaged by a hurricane isn’t particularly high, it may be tempting to set your deductible at a higher percentage to secure a lower rate. But keep in mind that the high deductible/low premium strategy could prove a little more costly with percentage deductibles than your standard dollar amount deductibles. For example, a 5% deductible on a home insured for $200,000 would mean you need to pay $10,000 out of pocket as opposed to $2,000 for a policy with a 1% deductible.

Wind and hail deductibles

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 and Illinois.

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

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 policy sets the dwelling coverage minimum deductible at 15% and 10% for detached structures such as sheds and garages.

How should you choose your deductible?

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, it’s 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."

How your deductible affects your premiums

Raising your deductible can have a significant impact on the premiums you pay each year. In general, a higher deductible — let's say $5,000 per incident instead of $500 — will result in significantly cheaper insurance costs. It could, however, cause you significant financial distress in the event that something bad happens and you need to file a claim or two.

Of course, there are ways to reduce your premiums beyond choosing a higher deductible. There are plenty of available discounts, 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 and how to lower those rates if they go up.

To determine what deductible amount is best for you, talk with a licensed agent at Policygenius who can give you unbiased advice and help you weigh the costs and benefits of high vs low-deductible policies.