What Should My Homeowners Insurance Deductible Be?

Fran
Lucy Lazarony
November 10, 2020

A deductible is how much you need to pay before a mortgage lender begins to pay on an insurance claim. The higher the deductible the less you pay in your homeowners insurance premium. So a high deductible is one way to keep insurance costs low. You could have a deductible as low as $500 and as high as $2,500. Which should you choose? It is up to you. On the low side, a $500 deductible would give you a higher insurance premium. On the high side, a $2,500 deductible would really cut into the price of your insurance premium. A $1,000 deductible, or even a $1,500 deductible would be a good compromise if you think you’d have trouble paying a very high deductible if you ever needed it. A $1,000-$1,500 deductible would be high enough to make a dent in your insurance premium costs, so you’d save money and you’d be able to pay the deductible if you were to file a claim.

Rather than dollar amounts, some deductibles are calculated as a percentage of the total amount of insurance on a policy. This deductible amount is established by the terms of your insurance coverage and can be found on the declarations page of your homeowners policy. So if you don’t have a dollar amount deductible be sure to review this page. Let’s take a closer look at deductibles on homeowners insurance policies.

How Dollar Amount Deductibles Work

If you have a dollar amount deductible with your homeowners policy, your deductible amount gets subtracted when you make an insurance claim. Let’s look at an example.

Let’s say you make a $15,000 claim on your homeowners insurance and you have a $1,000 deductible. The $1,000 deductible would be subtracted from the $15,000 claim amount, giving you a new claim of $14,000.

How Percentage Deductibles Work

Percentage deductibles are calculated based on a percentage of the home’s insured value. So if your house is insured for $200,000 and you have a two-percent deductible, $4,000 would be deducted from any insurance claim that you made with your homeowners insurance, and you’d have to pay it before your claim is paid.

Let’s look at an example. You make a $10,000 claim on your homeowners insurance. Your two-percent deductible is equal to $4,000. This $4,000 gets subtracted from your $10,000 insurance claim. So your new claim amount, after the deductible has been applied, is $6,000.

Deductible Gets Applied for Each Claim

With a homeowners policy, the deductible gets applied each time you file a claim. Let’s say you have $1,000 deductible and you file a claim for $10,000. Once the deductible is subtracted, the new claim amount is $9,000. And you’ll have to pay the $1,000 deductible before coverage kicks in.

Let’s say you make another claim later in the year for $5,000. Your $1,000 deductible gets applied this time too, as a subtraction from the claim amount of $5,000. So after the deductible is subtracted, your new claim amount is $4,000.

There is one major exception to this rule. In Florida, hurricane deductibles are applied per season rather than for each storm.

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Deductibles Applied to Property Damage

Here is something else to keep in mind. Deductibles generally apply to the property damage portion of your homeowners insurance policy. So if your home gets damaged by a covered peril, your deductible would get applied to your insurance claim.

State Regulations

Happy with your homeowners deductible? Thank your state insurance regulator. State insurance regulators dictate the way deductibles are incorporated into a homeowners policy. They also dictate how deductibles are implemented.

Raise the Deductible and Save

It was said earlier and it can’t be said enough. Raising the deductible amount saves you money on your homeowners insurance premium. So for the money-saving value alone, consider choosing a deductible of $1,000 or higher. Now you will pay that deductible amount each time you make a claim. So you have to be comfortable with that amount. What feels right to you? $1,000? $1,500? Talk it over with your spouse. What deductible would you like on your homeowners policy? The bigger the deductible the more you save with your premium. A bigger deductible also means a bigger deduction with your insurance claims. So you’ll need to be alright with paying more with a larger deductible each time you make an insurance claim.

Understanding Deductibles for Disasters

No one wants to be part of one but they happen everywhere. Some natural disasters come when we least expect them or there may be a season like hurricanes when the storms are expected. Let’s take a closer look at different kinds of disaster deductibles.

Hurricane Deductibles

Hurricane deductibles are generally higher than other homeowners policy deductibles and usually take the form of a percentage of the policy limits. If you live in a state prone to hurricanes, you’ll want to review your policy carefully. Just how high is the deductible amount? Make sure you understand the deductible you’ll be paying when and if a hurricane comes.

Wind and Hail Deductibles

Wind and hail deductibles work similarly to hurricane deductibles. Windstorms and hailstorms storms are common in the Midwest and in Tornado Alley, which is located in Texas, Oklahoma, Kansas and Nebraska. So if you live in these states, make yourself familiar with your disaster deductible for wind and hail. Don’t wait for a storm to come before reviewing your policy.

Flood Insurance Deductibles

A separate flood insurance policy comes with its own deductible. Note that flood insurance is not included in your home insurance policy and must be bought separately. Flood insurance deductibles are available in dollar amounts or percentages of the policy amounts. So you’ll get to choose the type of deductible that you prefer.

Earthquake Insurance Policy Deductibles

A separate earthquake insurance policy has deductibles as percentages of the replacement value of your home. Note that earthquake insurance is not included in your home insurance policy and must be bought separately. So check over the details on deductibles carefully. How much is the deductible in dollars and cents so you will know how much will have to be paid if you should make a claim? In addition to California, states with higher than average risk of earthquakes include Washington, Nevada, and Utah.

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