Many policies only have one deductible, but some have additional deductibles that apply to specific perils. When that happens, your insurer may use the term “all other perils deductible”- or AOP - to describe the deductible that applies in claims involving all the covered perils that the other deductibles don’t cover
Clear as mud, right? Let’s see if we can clear this up for you.
How do deductibles work in home insurance?
An insurance deductible is the amount that you pay out of pocket before your homeowners insurance kicks in to cover your loss. In the event of a covered claim, your deductible is deducted from your claims payment, and your insurer pays the 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 usually deducts your share of the claim – $500 – and pays the claim balance of $700.
As the insured, you typically 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.
You should note, however, that most insurance companies offer specific amounts to choose from and often require a minimum deductible.
Why are insurance deductibles necessary?
One of the most important reasons that insurance companies require deductibles is that it reduces a risk to the company called a moral hazard. Your home insurance protects you from major losses – and that’s a good thing! – but it may take away your incentive to avoid risky behavior. Essentially, insurance deductibles place some of the financial responsibility in a claim on you, and insurance companies hope this encourages you to reduce your chance of loss.
Deductibles also help insurance companies minimize the impact insurance claims have on their rates and financial stability. If insurers were responsible for the entirety of every loss, they could see an overwhelming number of claims. That would drive up insurance rates while also straining the company’s resources to meet its responsibilities.
When does an AOP deductible apply?
Your AOP deductible, sometimes called a standard deductible, applies to most property claims each time you file. Some common examples include claims for theft, vandalism, or fire.
However, you generally don’t have to worry about an AOP deductible when you file a liability claim. Plus, some policies have additional deductibles for certain types of catastrophic events, like hurricanes and severe thunderstorms. Damage caused by those events doesn’t trigger your standard deductible.
Here’s an example: Let’s say you experience some damage during an event the National Weather Service determined to be a named storm. If your home insurance policy has a hurricane deductible, then that deductible likely applies to your claim, not your AOP deductible.
How much is a standard home insurance deductible?
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.
To see your deductible, just flip to the declarations page of your home insurance policy. You also want to read your policy and ask your insurance agent if you have any questions about when your deductible applies. That way, you know what to expect when it’s time to file a claim.
Other types of insurance deductibles
In addition to an AOP deductible, you may also have these deductibles when you buy a policy from Kin.
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Hurricane deductible: A hurricane deductible applies to damage caused by the high winds and heavy rains of a named storm.
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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.
How to choose your homeowners insurance deductible
The larger your deductible, the lower your premiums tend 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 monthly payment you can comfortably afford each month, while avoiding deductibles so high that you’re overly burdened when you need to file a claim.
