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How Home Insurance Deductibles Work

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Whats The Right Home Insurance Deductible

How deductibles work home insurance claims

The homeowners insurance deductible thats right for you depends on your financial situation.

Go with the highest deductible youre comfortable with, whether thats psychologically or monetarily, Miller said. And dont think about it on a one-year basis as that tends to skew the thinking because you want to reduce your homeowner premium as much as possible over the course of your homeownership. A substantial deductible like $1,000 or $2,500 might save you $100 or even $200 to $300 or more on an annual basis, and after five years, youve put a dent in that homeowner premium.

Here are some scenarios to help you figure out which deductible to choose:

Whats A Deductible And Why Do They Exist

In insurance terms, a deductible is the amount that youre responsible for paying in the event of a claim. If the loss is covered by your policy, your insurance will then kick in to cover the rest. For example, if your policys deductible is $1,000 and you have a loss under your policy that costs $10,000, youll pay $1,000 and your insurer will take care of the remaining $9,000.

Although you probably wish that you didnt have to pay a deductible at all, they exist to help keep the price of your insurance down. If we didnt have them, there would be a lot of small claims, which would increase everyones premiums. Plus, deductibles act as an extra incentive for you to take good care of your home and car.

Home Insurance Deductible Defined

When you file a claim, your deductible is the amount agreed upon with your home insurer that youre required to pay. Once your deductible limit is met, your home insurer pays the rest of the claim amount up to your home insurance policy limit.

The deductible amount will be subtracted from the total claim payout your home insurance provider gives you. For instance, if you file an $8,000 home insurance claim and your deductible is $1,000, your home insurer will cut you a check for $7,000.

A home insurance deductible amount is either a preset dollar amount or a percentage of your home insurance policy value. Once its selected, the deductible is locked in for the time you have the home policy.

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How To Set Your Deductibles

The deductible you decide to go with should be based on what you can afford to pay on premiums, as well as what youre comfortable spending to repair or replace damaged property out-of-pocket.

Generally speaking, deductibles of at least $1,000 are best, as higher deductibles reduce your premiums. But that doesnt mean you should go with an extremely high deductible to pay rock-bottom premiums in hopes that a claim will never need to be filed. Keep in mind that the deductible amount you choose will affect any claims made for less than that amount.

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For instance, if you choose a $10,000 deductible, your premiums will likely be very low. However, youd be limited to filing a claim to cover damages worth more than $10,000. Otherwise, it wouldnt be worth filing a claim. So, if $5,000 worth of property was damaged or stolen, it wouldnt make much sense to pay out a $10,000 deductible. In this case, youd have to pay for these damages out of your own pocket.

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That said, if youre comfortable covering the cost of damaged or stolen property worth less than $10,000, then choosing a very high deductible to pay much cheaper premiums might be worth it.

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What Is The Average Deductible Amount

Home Insurance Deductible: What Is It &  How Does It Work?

Though it depends on the type of deductible you choose, you can expect to pay 1% 2% of your homes insured value. With flat rate amounts, standard policies suggest a $500 $2,500 limit. Which option you choose will affect your annual cost, as high deductibles will lower your annual premiums but smaller deductibles will give you a higher premium.

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Am I Required To Pay My Homeowners Insurance Deductible

If you file a claim for home repair, the contractor youve chosen to do the repairs will be the one to receive the deductible amount. If you do not pay the contractor for the work theyve performed, they can sue you and have a lien placed on the property. Additionally, the insurance company will not step in to pay for the remainder of the repair if you do not pay your deductible first.

Find Cheap Homeowners Insurance Quotes In Your Area

Your homeowners insurance deductible is the amount of money you agree to pay before you can make a claim with your provider. Because it affects the cost of your homeowners insurance and the coverage you’re able to use, choosing the right deductible is integral to getting a homeowners insurance policy with the most value.

Below, we explain how your homeowners insurance deductible can factor into the affordability of your policy. We analyzed thousands of quotes to show how adjusting your homeowners insurance deductible can be a necessary part of comparing quotes and finding the best coverage for you.

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How Does Your Homeowners Insurance Deductible Amount Influence Your Premium

We collected thousands of quotes from the nation’s largest providers to show how adjusting your homeowners insurance deductible can affect the rates you pay for coverage. We found that the average price of homeowners insurance can change by nearly $500 per year depending on the deductible you select.

Raising your deductible from $500 to $1,000 could decrease your homeowners insurance premium by 13%.

We also discovered that no matter your insurance provider, increasing your homeowners insurance deductible from $500 to $5,000 can decrease your premium by about one-third. However, as you can see from the following table, it’s a good idea to compare homeowners insurance quotes given the variance in annual premiums for the same amount of coverage.

Insurance provider

Methodology

We generated quotes for a typical property: a home built in 1968 insured for $250,000. We collected quotes with four different deductibles: $500, $1,000, $2,500 and $5,000. Then, we averaged the rates we got for each company and for each deductible.

ValuePenguin’s analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only your own quotes may be different.

Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Can Your Deductible Affect Your Premiums

How do Insurance Deductibles work

Yes, your deductible will have a significant effect on your monthly premiums because the insurance company is always thinking about risk.If you have a lower deductible, the insurance company is on the hook for more money.

This means they are going to charge you more money up-front since they take on more of the risk in the future.

If you decide to go with a higher deductible, the insurance company is on the hook for less money, so they will charge you less money up-front because their future risk is much lower.Be mindful of your policy when choosing your benefits.A policy that covers everything you need, but has a bit higher of a deductible might be better than a policy with a super low deductible, but that doesnt cover everything you need.

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Home insurance by state.

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Choosing The Best Home Insurance Deductible

Updated on Tuesday, August 13 2019 | 0 min. read| by Aaron Besson

Your deductible affects how much your home insurance costs. Heres what you need to know to pick the right deductible.

Your deductible is the amount you pay in a home insurance claim before your insurer covers the remainder, up to your policy limits. The deductible you choose has a direct impact on your premium, so its important to make an educated choice. Knowing how a deductible works helps keep as much money in your pocket as possible. This article covers:

Types Of Homeowners Insurance Deductibles

There are two main types of homeowners insurance deductibles. These will be defined in the policy:

  • Dollar-amount deductible: A dollar-amount deductible will define a specific dollar amount that you must pay out of pocket in a claim situation. In the roofing example above, we used a dollar-amount deductible of $1,000.
  • Percentage-based deductible: A percentage-based deductible will define a specific percentage of your homes insured value to be the deductible. Let us say your policy defines a 2 percent deductible and your dwelling coverage is $150,000. In the event of a claim, your deductible will be 2 percent of $150,000 or $3,000.

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What Is The Standard Deductible For Homeowners Insurance

While theres no standard deductible on every policy, there are two types of deductibles to choose from on a standard home insurance policy: dollar amount and percentage. Each has a place in your policy, but both arent good for the same claims.

Dollar Amount Deductible

A dollar amount deductible is the most common in home insurance policies, stating that you must pay a certain amount per home insurance claim that was filed. These deductible amounts are also usually lower than their percentage-based counterparts.

So, for instance, if you suffer a covered electrical fire that caused $7,500 in damage and you have a $1,500 deductible, youd have to fork up $1,500 and your insurance company would then pay the remaining $6,000.

Percentage Deductible

A percentage-based deductible is less frequent in home insurance policies, although its required in many states constantly affected by hurricanes. Percentage deductibles are based on the percentage of your dwelling coverage instead of being a set dollar amount.

If you have $300,000 in dwelling coverage and opt for a 3% deductible, youd have to fork over $9,000 per claim before your insurance company stepped in to cover the remaining damages. While its typically true that a higher deductible means less in premium payments, thats a pretty penny to shell out at once.

Special-Risk Disaster Deductibles
Hurricane Deductible
Wind & Hail Deductible
Earthquake Deductible
Flood Deductible

How Much Do Home Insurance Claims Increase Rates

Insurance Deductibles

One of the biggest indicators of risk used by insurers when they calculate your premium is your record, incluidng how often you file a claim. Statistically, if you’ve made claims in the past, you’re more likely to do so again.

So, after you file a claim, your homeowners insurance company may raise your premium when you look to renew. And that just might see you ultimately paying more than if you hadn’t reported the loss in the first place.

Here are the top 10 average home insurance percentage increases based on claims:

  • Filing a second fire claim — 44%
  • Filing a second liability claim — 39%
  • Filing a second theft claim — 38%
  • Filing a second water claim — 33%
  • Filing a fire claim — 20%
  • Filing a liability claim — 19%
  • Filing a theft claim — 19%
  • Filing a water claim — 16%
  • Filing a weather claim — 16%
  • Filing a second medical claim — 13%

So, beware of potential rate increases after you make a claim.

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When Do You Pay The Deductible For Homeowners Insurance

Your deductible is paid once your claim is accepted and youâve agreed to a claim settlement with your insurance company. You donât pay your deductible like you would your phone or utility bills â rather, your insurer simply subtracts it from the claim amount. If your claim is for $10,000 and you have a $500 deductible, youâll receive a $9,500 claim check from your insurer.

How To Choose A Deductible

There are several considerations for how to choose the homeowners insurance deductible for your policy. First, the dollar amount or percentage selected correlates directly to what you owe if a claim is made against your insurance coverage. Homeowners need to consider what they can realistically afford in the event of a disaster or theft that results in financial losses. Selecting a high deductible without having the ability to pay it easily could put homeowners in a disastrous financial position for the long term. This is particularly true when there is no emergency fund established and taking on consumer debt to cover an out-of-pocket deductible is the only solution.

In addition to considerations about the amount one can afford if a claim takes place, homeowners also need to think through the affordability of the policy itself. A higher deductible means the insurance company is taking on less financial risk. This results in a lower premium payment. However, the month-to-month savings may not be enough to cover the full homeowners insurance deductible should something happen in the future. The ultimate goal of selecting a deductible for a homeowners insurance policy is finding the balance between the out-of-pocket cost for a claim and the month-to-month cost of the insurance coverage itself.

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Understanding Homeowners Insurance Deductibles

You must pay a homeowners insurance deductible before you can make claims on any damaged or stolen property that’s covered by your policy.

While almost every home insurance policy comes with a deductible, you do have some power in choosing the deductible amount. Homeowners insurance companies present their deductibles differently. For instance, you might be able to choose from deductibles of $500, $1,000 or $2,500. Your premium will be lower if you choose a higher deductible, and vice versa.

Alternatively, some companies set the deductible as a percentage of your policy’s coverage levels. For example, let’s say your home is insured for up to $300,000 and your deductible is equal to 1% of the coverage limit. When filing a claim, you would pay $3,000.

Percentage-based deductibles are commonly offered for specific types of covered perils. For example, in states or regions where homeowners are more likely to encounter wind damage or hail, insurers often assign these perils a separate percentage-based deductible instead of a flat amount.

Do Deductibles Affect Insurance Premiums

How do insurance deductibles work?

Yes, deductibles can have a large effect on your insurance premiums. Typically, the lower the amount of your deductible, the higher your insurance premiums will be, and vice versa.

With lower deductibles, you pay a higher premium for your coverage, but end up paying less should you end up making an insurance claim. Thus, higher deductible amounts offer lower premium payments, but you end up paying more from your own pocket should a claim be necessary.

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How Do Homeowners Insurance Deductibles Affect Premiums

How high a homeowners insurance deductible is directly impacts premiums.

Here’s how premiums work: The higher the deductible, the lower the premium. Conversely, the lower the deductible, the higher the premium. The trick is to imagine the worst-case scenario, determine how much money you can reasonably expect to come up with in an emergency, and base the deductible on that.

What Is A Homeowners Insurance Deductible

A homeowners insurance deductible is the amount a person agrees to pay toward any claim. For example, if a homeowner opts for a $1,000 deductible, that means they are responsible for paying the first $1,000 when a claim is filed.

Let’s say a tree falls on a house, causing $11,000 worth of property damage. The homeowner would pay $1,000 toward repairs, and their insurance company would cover the remaining $10,000.

Now, imagine that it’s a few months later, a storm comes through, and a portion of the homeowner’s roof is blown away. Because the deductible applies to each claim separately, they’ll need to cover the deductible again. That means they’ll pay $1,000 toward the roof repair and the insurance company picks up the rest.

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Guide To Homeowners Insurance Deductibles

While everyone needs it, buying homeowners insurance can be intimidating. There’s much to learn, including how premiums work, what a home insurance deductible is, and how to snag discounts on homeowners insurance. Here, we’ll break things down in a comprehensive way, explain how a homeowners insurance deductible works, and help demystify homeowners insurance.

Choose A Deductible Thats Right For You

Why Do Homeowner Insurance Deductibles Vary by State?

When selecting a deductible for your home insurance policy, there are a few considerations to take into account:

  • How much could you afford to pay out-of-pocket if you had a claim?

  • How low do you want your home insurance premiums?

  • Can you qualify for a discount if you dont file a claim?

  • Will filing a claim increase your premiums?

Its normally wise to select a deductible that you have the financial resources to cover if you need to file a claim, but there can be advantages to choosing the highest deductible you can afford. Selecting a higher deductible usually lowers a home insurance policys premiums, which leads to monthly savings. A higher deductible also will reduce how likely you are to file a small claim, which could disqualify you for a discount or cause your premiums to go up.

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Understanding Your Home Insurance Deductible

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If you have a mortgage, chances are your lender requires homeowners insurance. Its something that can help protect your investment and provide some much-needed financial relief if your property sustains costly damage during a covered event. Just like health insurance or auto insurance, youll have to pay a premium but that only makes up one part of your total costs.

Your home insurance deductible is the other side of the coin, and it can have a real impact on your financial health. Lets take a deep dive into how your homeowners insurance deductible works. Understanding it can help protect your home while saving you money in both the short and long term.

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