Homeowners insurance can be a complex subject full of confusing insurance industry jargon and nuances– why don’t they teach this stuff in high school?

If there’s one thing to make sure you understand when it comes to home insurance it’s your insurance deductible. It’s pretty simple- the higher your deductible, the lower your premium. The lower your deductible, the higher your premium. Just be sure not to set your deductible so high you can’t afford it in the event of a claim. Insurify is here to help you decide how to select the right home insurance deductible for your home. You can cut your monthly insurance rates by selecting a higher deductible, just be sure to think through scenarios before you opt for the seemingly more appealing lower premium. 

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Home Insurance Deductibles, Explained

A homeowners insurance deductible is the amount of money you’ve agreed to pay before you’re able to file an insurance claim with your home insurance company.  An integral part of your home insurance policy, the deductible you select will determine the home much cash you’re shelling out every month for insurance payments. Selecting the right deductible can help you get the most value out of your home insurance and coverage you’re able to use. 


Here’s an example. Let’s say you’ve selected a deductible of $1,000. A windstorm rolls through your town, and lightning hits a tree, causing it to fall through a window in your home. With your selected deductible, you’ll have to shell out $1,000 towards repairs before being eligible to file a homeowners insurance claim

Percentage-Based vs. Fixed Dollar Amount Deductibles 

Every homeowners insurance policy will come with a deductible, but you as the policyholder have the power to select the amount. Most insurance companies present their deductible options in different ways, some may give you options in $500, increments, others may have lower deductible options or much higher margins. Other companies may set your deductible amount to be a percentage of your selected policy’s coverage levels. If your home is insured up to $500,000  and your deductible is 2% of the coverage limit, that would be equal to $10,000 before you’d be able to file an insurance claim. These percentage-based deductibles are more common in regions with specific “covered perils”. In locations where homes are more susceptible to hail or wind damage, home insurance companies will assign specific named perils with their own percentage-based deductible instead of a flat monetary value. 

Perks of Percentage Deductibles 

There are a few scenarios when a percentage-based deductible is a better choice for homeowners than other options. If you own a high-value home and have enough cash laying around for repairs here and there out-of-pocket without the need to file insurance claims, opting for a percentage-based deductible could save you on monthly home insurance premiums. For a home insured up to $2 million with a 1% deductible of  $20,000, the homeowner would be taking on a larger percentage of the insurance policy’s risks than if they’d settled for a low, fixed dollar amount deductible. In this case, the homeowners premium would increase. 

For homeowners who wish to increase their deductible and lower their premiums, percentage deductibles are the better option. This is because of the preset incremental increases commonly offered by homeowners insurance companies

Disaster Deductibles

If you have a niche add-on insurance product on your homeowners policy, like flood insurance or earthquake insurance, you’ll need to set deductible amounts on these as well. Flood Insurance companies generally give policyholders the choice of a deductible between $2,000 and $5,000. Just like standard homeowners insurance, the higher your selected deductible for specialty insurance, the lower your premium. The lower your deductible, the higher your premium. The same logic is applicable to hurricane deductibles, hail deductibles, and other high-risk policy deductibles. There are lots of different types of deductibles. While your standard deductible will apply to your general homeowners policy, be sure you’ve thought through the deductible amount for all your insurance policies

How to Select a Home Insurance Deductible

The key to home insurance deductibles is simple- it’s all about balance. Finding equilibrium between monthly budgets and living expenses with a reasonable homeowners insurance premium, while protecting your property from long-term damage with a rational deductible. There are a few things to keep in mind when you select your deductible.

Don’t select the highest deductible just to lower your premiums- this could really backfire. You have to be prepared that whatever you’ve selected as a deductible, you’ll have to be ready to shell out (in cash) if the time comes to file a home insurance claim. If your brand-new $5,000 TV got stolen, but you’ve selected a $10,000 deductible to avoid a higher premium, be prepared to replace your personal property without help from your home insurance policy

Doubling your home insurance deductible from $500 to $1,000 could drop your monthly premiums 13%. 

Selecting a Home Insurance Deductible- Frequently Asked Questions 

How should my home’s insured value relate to my insurance deductible?

It’s important to think about deductibles as cash. If you have a high deductible, you’ll need a lot of cash in the case that you’re forced to pay out-of-pocket for expenses after an accident occurs. If you think of a deductible as what would be needed cash on hand in the case of an emergency, it’s easier to understand how much you should select. A home’s insured value doesn’t necessarily have anything to do with insurance deductibles. If you have a lot of cash on hand, go ahead and select a higher deductible to save on monthly premium payments. 

How does my home insurance deductible impact my insurance coverage?

Whatever you select as your home insurance deductible is the amount of money you’re responsible to cover before filing an insurance claim. The deductible shouldn’t impact the coverage amount that you receive after a disaster, but it will impact the amount you’re responsible to cover yourself. 

How can I get cheap home insurance?

If you’re looking to cut your homeowners insurance expenses, consider finding a new policy before setting a sky-high deductible to save on monthly premiums. By comparing quotes before committing to the first policy you find, you can easily see your cheapest and best coverage options, deductible increments, and premium rates. Insurify let’s you compare quotes side-by-side from the nation’s top insurers, like State Farm, Allstate, and GEICO. The whole process is online (and free), and you only need to talk on the phone with an insurance agent if you want to. Say bye-bye to spam.

Your Most Important Home Insurance Decision- Deductibles

A lot of pressure comes with selecting a home insurance deductible. Remember, it’s simple. Keep an even balance, and never set a deductible higher than what you’d be able to cover in case of an emergency. And to cut costs altogether, make sure your home insurance premiums are the lowest they can be by comparing quotes with Insurify

 

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Updated June 15, 2020

Jackie Cohen received her B.A. in Global Media and Public Relations from the University of Massachusetts, Amherst. Currently based in Boston, MA, she works as a content writer for Insurify. An avid globe-trotter and foodie, Jackie spends her spare time adventuring far and near.