How does a home insurance deductible work?

As you begin looking for a homeowners, condo or renters insurance policy to help protect your investment, knowing your choices for the deductible is important. The deductible chosen can affect the premium paid.

What is a homeowners deductible?

A deductible is the amount you would feel comfortable paying towards a loss, should a claim occur, and it’s to be paid or incurred by the insured before the insurance company pays their portion of the covered loss. The deductible amount can be as low as $250 and go all the way to $1,000 or perhaps be a percentage of your home’s insured value (1% or 2%). The deductible amount is determined by you when a policy is requested. As the insured, you can change the deductible amount any time after the policy is issued. Since a claim may occur in the future, you should always choose a deductible amount you are comfortable with.

How does a deductible work?

When you contact your insurance company about a claim, the insurer will determine the amount to cover the loss. When the claim amount is paid, the amount determined by the insurer will be used and your deductible amount will be subtracted. For instance, if you have a roof claim and the insurer determines the loss is $5,000, you will pay the first $500 (as your deductible) and the insurance company will pay the remaining $4,500.

In general, each time a claim is filed, the deductible would apply. An exception could be hurricane losses where deductibles may be applicable by year instead of individual occurrence.

Deductible vs premium for affordability

When deciding on a policy, a deductible can be a helpful way to move the premium price to something you’re comfortable with. If a lower deductible is requested, the policy premium will typically be higher. However, if a higher deductible is selected, then the policy premium will likely be lower.

Deductibles for disasters

Many storms are covered by homeowners insurance, but floods and earthquakes typically have a separate policy.

• Hurricane – A special deductible may apply should the loss be caused by a hurricane. There may be specific triggers and policy language which varies by state. The policy language typically determines when a storm is considered as a hurricane and this deductible would apply. Hurricane deductibles can be higher than other homeowner policy deductibles and percentages may be used instead of set dollar amounts — your policy should always have this listed.
• Wind and hail – Similar to hurricane, wind and hail deductibles can be different from state to state, with those in tornado prone areas being more affected. For wind and hail, percentages may be used for the deductible instead of set dollar amounts.
• Flood – Insurance for flooding is typically sold separately from homeowners insurance. Deductibles vary by state and can be either a set dollar amount or percentage of the home’s insured value.
• Earthquake – Deductibles range from 2% to 20% of your home’s replacement value, depending on your state. Earthquake coverage may need to be specifically requested in your homeowner policy.

Deductibles for Renters policies

Renters insurance deductibles work very similar to homeowners deductibles. A renters policy is for your personal property — in other words, it helps protect the things that you own. In the case of a covered loss, you are responsible for the chosen deductible amount before your insurance company pays the rest of the claim. The amounts usually range between $500 to $1000, but lower or higher deductibles may be available.

Now that you have read about this topic, you may want to learn about the relevance of home insurance annual reviews, condo insurance basics or get more information about bundling insurance. And consider contacting a State Farm® agent if you want to get a quote for home, life or auto insurance.