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