What is a deductible?
An important part of your homeowners insurance policy is your deductible. This applies not just to homeowners insurance but also renters insurance, car insurance and life insurance.
A homeowners deductible is the amount that you are required to pay before your insurance coverage kicks in to pay for qualified losses. Unless your plan specifies otherwise, a deductible is not usually reimbursed; it’s a minimum amount you pay toward the total damages. Once you pay your deductible, you can file a claim with the insurance company to pay the rest.
For example, if you have a $5,000 deductible and the total damages for your home are $20,000, you would pay $500, and your insurance claim would pay the remaining $15,000.
How do deductibles work?
When you file a home insurance claim, you’re often required to pay a deductible before the insurance company compensates you for the loss. Once the claim is approved, your insurance company will give you the estimated payout, and request the payment for your deductible. From there, they’ll write you a check for the remaining amount. However, you’re not always required to pay a deductible after a claim. Only certain coverages require a deductible, which we’ll talk more about later.
Types of homeowners insurance deductibles
There are two main types of deductibles. The most common deductible is a standard dollar amount that you get to choose when you buy a policy. For example, you could choose a $500 deductible, $1,000 deductible, or another amount that you could comfortably afford to pay out-of-pocket if you had to file a claim.
However, not every insurance company allows you to choose your deductible. Some companies automatically set your deductible based on a percentage of the home’s insured value. This is usually how hurricane deductibles are calculated for homes in high-risk flood and storm areas.
For example, if your home was insured for $100,000 and your insurance company required a 3% deductible, your deductible would be $3,000. If you filed a claim for $15,000, your final payout would be $12,000 after paying the deductible.
Which home insurance coverages require a deductible?
Not every home insurance claim requires a deductible. Usually, you only have to pay the deductible if you file a dwelling or personal property claim. Your final payout would be the estimated cost of repairs, minus the cost of your deductible. However, if you file a liability, medical payments or loss of use claim, there’s usually no deductible required, and you get to keep the full payout.
What are disaster deductibles?
Not every type of disaster is covered by your homeowners insurance policy. The disaster deductible does not include what is normally covered under your insurance; it is a separate form of coverage that is designed to cover what your insurance does not.
Disaster loss applies to damages that occur within an area that has been formally declared as a federal disaster area by the president. This is often the result of natural disasters such as hurricanes, wildfires and floods.
These deductibles are similar to casualty loss in that they are also tax-deductible. However, disaster deductibles offer more options for filing and claiming your tax refund.
Disaster deductibles also apply to commercial property owners and renters.
How to choose which deductible is right for you
While it may not seem like a big deal when you are purchasing your insurance, the kind of deductible you choose can make an enormous difference in how much you have to pay in an emergency. If you aren’t careful, your insurance deductible can end up costing you more than your losses.
The kind of home you own will determine how much coverage you need. More expensive homes or people with more expensive items will need more coverage to fully replace or repair damages.
It’s also important to inventory your belongings and calculate the estimated value. You can use this figure when creating your homeowners insurance policy to ensure you purchase enough coverage for your things.
Once you determine how much coverage you need, you can determine what kind of deductible is most appropriate for you.