There are several different parts to a home-insurance policy, and one of the most critical parts of a policy is the home insurance deductible, but understanding them can seem complicated.
Well, here’s the thing:
Figuring out how your homeowners insurance deductible works isn’t complicated and it almost works like any other deductible.
In this post today, I will go over exactly how homeowner insurance deductibles work, how to choose the best one for your needs and the different types of deductibles that are attached to a home insurance policy.
What Is A Home Insurance Deductible?
Think of a deductible as the amount of money you have to pay before your home insurance company will come in and cover their part.
Whenever you file a homeowners insurance claim, you will be responsible for the deductible related to the claim.
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How Does A Homeowners Insurance Deductible Work?
Just like health insurance, homeowners insurance has a different deductible for different parts of the policy.
For instance, let’s say you file a claim from a tree falling into your home (hazard coverage).
You have a guest over your home, and they are hurt by the falling tree (liability coverage) you would only need to pay the deductible for the hazard claim.
If your guest came back and sued, the deductible you paid would cover both claims.
There are two types of home insurance deductibles, they are percentage deductibles and dollar amount deductibles.
They both work the same way in that you have to pay them before the insurance company pays out the remainder of a claim.
However, this usually means the insurance company will take out your deductible before paying the claim.
Percentage Deductibles
A percentage deductible is going to be based on a percentage of your home’s insured value, no a specific set amount.
What this means is that:
If your home is insured for $250,000 and your policy has a 2% deductible, $5,000 is how much you would be responsible for.
The amount would basically be deducted from your claim payment, so if your total loss were $35,000 the coverage amount would be $30,000.00
Dollar Amount Deductible
A deductible based on dollar amount is going to have a set amount that you must pay out of pocket when you file a claim for a covered loss.
Usually, these dollar amount deductibles can range from $500 up to $4,000 depending on your policy and age of your home.
Remember, the deductible you choose will affect your monthly premium, the lower the amount of coverage you want, the higher your premiums.
If you choose a higher deductible, your premiums will be lower.
So:
Let’s say you have a $1,500 deductible and you file a claim because heavy snow caved in your roof.
If it is determined that it will cost $5,000 to fix damages, you will have to pay the first $1,500 of the repair costs.
The insurance company will pay the remaining costs of $3,500.
How To Choose Your Deductible?
You should choose your deductible based on what you can comfortably afford to pay every month.
It is also a good idea to base it on an amount you know you could come up with if you had to file a claim.
As I stated above, the higher the deductible, the more affordable the policy will be.
I would say get the maximum amount of benefits that you can on the policy and then play around with the deductible to get the most affordable price.
Overall it is primarily based on what you can afford now and how much you can pay out of pocket later.
Can Your Deductible Affect Your Premiums
Yes, your deductible will have a significant effect on your monthly premiums because the insurance company is always thinking about risk.
If you have a lower deductible, the insurance company is on the hook for more money.
This means they are going to charge you more money up-front since they take on more of the risk in the future.
If you decide to go with a higher deductible, the insurance company is on the hook for less money, so they will charge you less money up-front because their future risk is much lower.
Be mindful of your policy when choosing your benefits.
A policy that covers everything you need, but has a bit higher of a deductible might be better than a policy with a super low deductible, but that doesn’t cover everything you need.
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What Are Disaster Deductibles?
Just like health insurance can have a separate deductible for prescription drugs, homeowners insurance policies have different deductibles for certain types of storm damage.
Even though hurricanes, wind, and hail are covered by your homeowners insurance policy, they still have their own separate deductible if a covered loss happens from a specific disaster.
Hurricane deductibles
In hurricane-prone areas, special deductibles may be applied to claims if it was figured by the insurance company that the covered loss was a result of a hurricane.
So, how is it determined if your home was damaged by a hurricane?
You will find that most homeowners insurance companies wait for an official ruling from the National Weather Service and if they name the storm or declare a hurricane watch.
You will find your hurricane deductible to be higher than your standard deductible and depending on the company can come as either a percentage of your home or a fixed dollar amount.
Wind/hail deductibles
These deductibles are also going to be higher than your standard deductible but lower than or the same price as a hurricane deductible.
Think of Tornado Alley (Kansas, Oklahoma, Texas, and Nebraska) and specific Midwestern states like Ohio.
This is where you will find this type of deductible often being used.
Flood & Earthquake insurance deductibles
Your homeowners policy will not cover floods or earthquakes.
Those policies will need to be purchased from insurance companies that cover floods or earthquakes.
However, flood insurance deductibles come in both dollar amount and percentage options.
Earthquake insurance is usually based on a set percentage of the insured home value.
Taking Action
Now that you know how the deductibles work for a homeowners insurance plan, you should be better equipped to purchase the best policy for you and your family.
There is no need to wait to get a home insurance quote and believe it or not, more than 70% of people don’t shop for their homeowners insurance, they just take what is given.
So you are already ahead of the game by reading this article.
You can get a quote by clicking here or on the button above, whatever you do, no matter what deductible you choose, pick a policy you will be able to afford.