A home insurance deductible is the amount of money that you’re responsible for covering in certain insurance claims. If you have to file a claim on your home insurance, your deductible may be paid out of pocket or deducted from any funds paid to settle your claim. Many home insurance policies have a single deductible for all perils, but some can have more.
How does a home insurance deductible work?
A deductible for your home insurance works pretty much how insurance deductibles work on any policy. Basically, you’re responsible for covering a certain dollar amount of your losses in a claim. That amount is usually deducted from your claims payment, and your insurer pays the remaining balance up to the maximum limit stated in your policy.
For example, let’s say you lost $1,200 of personal property to theft, and your standard deductible is $500. Your insurance company subtracts your share of the claim – $500 – and pays the balance of $700.
As the insured, you may get to choose the amount of your deductible when you select your insurance policy. This gives you a certain amount of control over your insurance premium. Selecting a higher deductible almost always results in a lower premium, but it also means you’re responsible for more of your financial loss if you ever file a claim.
You should also note that most insurance companies offer specific amounts to choose from and often require a minimum deductible. And in some situations, an insurer may only agree to offer you coverage if you select a certain amount.
Impact of location on deductible options
Some insurance companies require minimum deductibles on their home insurance policies. These are particularly common in areas at a high risk of certain risks. A good example is the Texas coastline where the high risk for catastrophic windstorms makes homes somewhat difficult to insure. However, minimum deductibles can also help to keep the cost of home insurance in check.
How deductible amounts vary based on the type of claim
Policies typically include different deductible amounts for different types of losses. For instance, property claims typically have a deductible. Personal liability claims, however, usually don’t have one. That also holds true for medical payment claims.
Different types of deductibles in home insurance policies
Every home insurance policy has a standard or “all other perils” (AOP) deductible. But your policy may have others. These additional deductibles are usually specific to certain types of perils. Let’s take a closer look at each type.
Deductibles are expressed either as a fixed amount or a percentage of your dwelling coverage, and your options for those amounts vary from insurer to insurer.
Standard deductible
Your standard deductible is also called an all other perils deductible because it applies to most property claims each time you file. Some common examples include claims for theft, vandalism, or fire.
In many cases, this deductible is a fixed dollar amount, but some insurers may offer you the option of a percentage deductible. This means your deductible is a percentage of your policy’s dwelling coverage limit. For example, let’s say you choose a deductible that is 1% of your $400,000 dwelling limit. In most claims, you’d be responsible for covering $4,000 of your losses.
Deductibles for disasters
You may also have specific deductibles for certain types of weather events. Hurricanes, wind, and hail are typical examples of disaster deductibles for homeowners who live in areas with a particularly high risk of losses from these events.
Hurricane deductible
A hurricane deductible applies to damage caused by the high winds and heavy rains of a named storm. It can be a flat amount, but it’s often a percentage of your dwelling limits.
Wind/hail deductible
If heavy winds, rains, or hail damage your home, then you may pay a wind/hail deductible. This is sometimes called a severe convective storm deductible, and it can also be either a percentage or a flat-rate deductible.
What is an average home insurance deductible?
Because insurers can have so many different kinds of deductibles, and people can usually choose how much their deductible is, coming up with an average doesn’t tell you much. What we can say is that home insurance deductibles typically range from $500 to $10,000.
How to choose the right deductible
The larger your deductible, the lower your premium tends to be. That’s because a higher deductible means you take on greater responsibility for the cost of a claim – which means your settlement payout is lower, too.
Though it might be tempting to take on the largest deductible available to lower your premium payments, it’s important to choose one you can comfortably afford at the time of a claim.
So before you pick a deductible for your homeowners insurance policy, be sure to review a range of options. The goal is to find a balance between deductibles and premiums that leaves you with a premium you can comfortably afford each month, while avoiding deductibles so high that you’re overly burdened when you need to file a claim.
