How Home Insurance Deductibles Work, With Examples
Flat and percentage deductibles, separate wind and hurricane deductibles, and how to choose the right amount.
In this guide
Key takeaways
- The deductible is the part of a covered loss you pay before insurance pays the rest.
- Deductibles can be a flat dollar amount or a percentage of your home's insured value.
- Some areas have separate deductibles for wind, hail, hurricanes or earthquakes.
- A higher deductible usually lowers your premium, but means paying more after a loss.
Introduction
Every home insurance policy has a deductible, but many homeowners aren't sure exactly how theirs works until they make a claim. Understanding it helps you choose the right amount, compare quotes fairly and plan for the cost of a claim.
Advertisement
What a deductible is
A deductible is the amount you pay toward a covered loss before your insurer pays the rest. It applies to claims for damage to your home and belongings. It usually doesn't apply to liability claims, such as someone being injured on your property.
Example: a covered storm causes $12,000 of damage to your roof. Your deductible is $1,000. You pay the first $1,000, and your insurer pays $11,000, up to your policy limits.
If the damage costs less than your deductible, the insurer pays nothing, so it usually isn't worth making a claim.
Flat dollar deductibles
Most standard home policies have a flat deductible, such as $500, $1,000 or $2,500. It's the same amount for each covered claim, which makes it easy to plan for.
8 more sections · 7 min read
Continue reading this guide
Watch a short ad to read the rest of this guide. You'll only need to do this once for this guide.
Not now, show me another guide →Percentage deductibles
Some deductibles are a percentage of your home's insured value, also called the dwelling coverage amount, rather than a fixed dollar figure. This is common for wind, hail and hurricane damage in high-risk areas.
| Flat deductible | 2% percentage deductible | |
|---|---|---|
| Dwelling coverage | $400,000 | $400,000 |
| Deductible | $2,000 | $8,000 (2% of $400,000) |
| Damage from a covered storm | $15,000 | $15,000 |
| You pay | $2,000 | $8,000 |
| Insurer pays | $13,000 | $7,000 |
Figures are for illustration only.
The NAIC suggests asking your agent whether your deductible is a fixed dollar amount or a percentage of your home's insured value. It can make a big difference.
Separate deductibles for certain events
Depending on where you live, your policy may have a separate deductible for:
- Hurricanes or named storms, often in coastal states
- Wind and hail, often in areas prone to severe storms
- Earthquakes, which are usually covered by a separate policy or endorsement with its own deductible
Check your declarations page to see which deductibles apply and when.
Advertisement
How the deductible affects your premium
Choosing a higher deductible usually lowers your premium, because you're taking on more of the cost of smaller losses. The Insurance Information Institute says raising your deductible to $1,000 may save as much as 25%, depending on your insurer and policy.
The trade-off is that you'll pay more when you do make a claim.
How to choose your deductible
- Check your savings. Choose an amount you could pay quickly, without borrowing, if something went wrong tomorrow.
- Compare the savings. Ask for quotes with different deductibles and see how much the premium actually changes.
- Think about how often you'd claim. Small claims can affect your premium at renewal, so many homeowners use their policy mainly for larger losses.
- Check any lender rules. Some mortgage lenders set a maximum deductible.
- Look at storm deductibles separately. In high-risk areas, the percentage deductible may matter more than the standard one.
Advertisement
Comparing premiums and deductibles
Here's a simple way to see whether a higher deductible is worth it. The premiums below are made up for illustration.
| Deductible | Yearly premium | Yearly saving vs $500 | Extra you'd pay per claim |
|---|---|---|---|
| $500 | $1,800 | – | – |
| $1,000 | $1,600 | $200 | $500 |
| $2,500 | $1,400 | $400 | $2,000 |
In this example, the $1,000 deductible pays for itself if you go more than two and a half years between claims. The $2,500 deductible takes five years. Use your own quotes to run the numbers.
When a claim may not be worth it
If the damage is only slightly more than your deductible, some homeowners choose to pay for repairs themselves. Claims can affect your premium at renewal, and a history of small claims may make coverage harder to find. Talk to your agent if you're unsure. They can explain how a claim might affect your policy.
Advertisement
Deductibles and your mortgage
If you have a mortgage, your lender requires you to keep home insurance and may set rules on your policy, including a maximum deductible. Check your loan documents or ask your lender before raising your deductible.
It's also worth keeping enough savings to cover your highest deductible. In areas with percentage deductibles for storms, that amount can be several thousand dollars.
Conclusion
Your deductible decides how much of a loss you pay yourself. Know whether yours is a flat amount or a percentage, check for separate storm or earthquake deductibles, and choose an amount that balances a lower premium against what you could comfortably pay after a loss.
Common questions
Do I pay the deductible to my insurer?
Usually not. The insurer subtracts the deductible from the claim payment, and you cover that part of the repair cost yourself.
Does the deductible apply to every claim?
Generally, yes. Each covered claim usually has its own deductible, though some policies have special rules for certain events.
Can I change my deductible?
Usually, yes, often at renewal. Ask your agent how a change would affect your premium.
Sources and further reading
This guide is general information, not insurance advice. Coverage, exclusions and prices vary by insurer, policy and state. Always read your policy and talk to a licensed agent or your insurer about your situation.
