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What Is A Deductible On Home Insurance

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What is a Home Insurance Deductible? – GEICO Insurance

Some insurers offer a zero deductible. Under some circumstances, you may be able to waive the fee during the process. However, these plans may have higher costs, and you may need to meet specific criteria to qualify. An example is having the additional endorsement for windshield replacement insurance where you dont pay if your windshield is cracked or damaged.

How Home Insurance Deductibles Work

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Home Insurance Deductibles – How Do They Work?Deductibles are what you can expect to pay out of your pocket before the insurance steps in to pay for damages. Knowing about hidden deductibles in your policy will save you a lot of time, money, and frustration if anything terrible happens to your home.

Types of DeductiblesThere are two types of deductibles on home insurance policies:

  • Percent-Based Deductible Percentage-based deductible means that your deductible is a set percent of the Coverage A or dwelling coverage in the policy. . In most cases, it’s between 1 and 5 percent of your home’s replacement value.So, if your policy has $200,000 of dwelling coverage for your home and you have a 2% deductible, then you would have to pay for the first $4,000 of damages to your home before the insurance company starts paying. Keep in mind these % deductibles are often attached to special perils, like a Hurricane Deductible or Wind/Hail Deductible.
  • Dollar Based Deductible You pay a set $ amount anytime you file a claim. The most common deductible is $1,000. However, it can be as little as $500 or as high as $10,000.
  • So let’s say you have a home insurance policy in Texas with the following coverage and deductibles:

    • $300,000 in dwelling coverage
    • $1,000 Deductible
    • 2% Hurricane Deductible

    Example 1 – A hurricane does $8,000 in damages

    Example 2 – A hail storm deals $15,000 in damages

    Example 3 – A fire burns through $50,000 in damages

    Major Claims And Disasters

    There are some exceptions to paying your deductible or applying only one. Here are some examples:

    • They may apply per season or by calendar year. For example, Florida is the only state that uses calendar year deductibles for hurricane insurance claims.
    • For flood insurance claims, there may be distinct deductibles for your building structure and contents.
    • You insure your car and home with one insurer, and they have agreed you will only have one in a loss that affects the two.

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    Understanding Your Homeowners Deductible

    Jun 2, 2015 | News, Residential Property

    What is a Homeowners Deductible?

    A homeowners deductible is the portion of a covered loss you must pay before your insurance company pays for any of the loss. Typically, your insurance company will simply subtract the deductible from the total amount of your claim, rather than requiring you to pay the deductible up front.

    Types of Deductibles

    Your policy may have different deductibles based on the reason for your claim. A typical Texas homeowners policy will have two deductibles:

    • Clause 1 deductible applies to claims involving covered windstorm damage and
    • Clause 2 deductible applies to claims involving all other types of covered damage.

    * Not all policies contain named storm deductibles. It is important to understand what deductibles apply to your policy. Ask your agent or another company representative if you are unsure if your policy contains a named storm deductible.

    Calculating the Deductible

    Insurance companies can calculate homeowners deductibles as either a fixed dollar amount or a percentage of your homes insured value. A dollar deductible provides an easy way to anticipate the amount youre responsible for in the event of a covered loss.

    For example, if you have a $500 deductible, you are responsible for $500 of the loss and the company pays for the rest of your loss, up to the policy limits.

    Percentage deductibles are calculated as a percentage of your homes insured value and not a percentage of the claim amount.

    Higher Versus Lower Deductibles

    Explaining Deductibles

    When deciding upon your policy deductibles, you will notice that higher deductibles usually reduce your policys annual premium. This is because higher deductibles reduce the likelihood of frequent, small claims. When you choose a higher deductible, youre showing your insurance provider that you dont intend to use your policy for small, unnecessary things in return, your insurance provider can offer you a lower premium, because you are unlikely to create a disproportionately high share of claim costs.

    Avoiding frequent small claims is also helpful to you in the long term: making a claim usually eliminates any claims-free discounts that you currently enjoy on your policy, which increases your annual cost of insurance. Frequent claims can also result in future surcharges, or even the loss of your coverage, reducing or even eliminating any benefit received from making small claims. From a financial perspective, it makes more sense to manage your insurance premium by taking advantage of reasonably higher deductibles and by avoiding unnecessary small claims.

    Insurance is designed to take care of large losses which can cause significant financial damage to your family. Smart deductible choices can help to keep your insurance premiums as competitive as possible, while preserving your coverage for those critical incidents when you really need it.

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    What Does A Disappearing Deductible Mean

    A disappearing, or vanishing, deductible is an endorsement that can be added to your insurance to lower your costs. For each year you do not file, your payment will be reduced by 20%. Ideally, after five years of driving, there would be no fee to pay unless you make a claim.


    • It is an extra way to save.
    • You pay less money out of pocket if you file an at-fault accident.
    • Once you sign up, your insurer will automatically lower your cost each year.


    • Not all insurers offer this incentive.
    • It may or may not be worth it, depending on when/if you file.

    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 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 up to $300,000 and your deductible is equal to 1% of the coverage limit. Instead of paying a set dollar amount 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.

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    What Are Hurricane Deductibles

    Hurricane deductibles are what you pay for home repairs after hurricane damage and are usually higher than a regular home insurance deductible. For example:

    If you have a house fire, you would pay the amount of your regular deductible toward repairslets say, $1,000.

    In some states you could have a much higher hurricane deductiblesay, 10% of your dwelling coverage, which would be $30,000 on a house thats insured for $300,000.

    Insurance companies can use hurricane deductibles that are either a set amount or a percentage varying from 1% to 5% of the homes insured value. In some cases, such as states with higher wind risk, these percentages are upwards of 10%.

    In Florida, for example, a home insurance company must offer hurricane deductible choices of $500, 2%, 5% or 10%. The $500 choice doesnt have to be offered if the house is insured for more than $100,000.

    Percentage-based deductibles, like 5%, are calculated based on the coverage amount you have for your dwelling, meaning house structure.

    Hurricane deductibles can apply to wind and rain damage that are a direct result of a hurricane. For example, if rain comes in through a hole in the roof caused by a hurricane, the roof and water damage could be subject to a hurricane deductible.

    In addition to hurricane deductibles, you might find that your home insurance company has a windstorm or wind/hail deductible. These apply to wind and/or hail damage not caused by named storms like hurricanes.

    Flood & Earthquake Insurance Deductibles

    Insurance101 – Deductibles

    Your homeowners policy will not cover floods or earthquakes.

    Those policies will need to be purchased from insurance companies that cover floods or earthquakes.

    However, flood insurance deductibles come in both dollar amount and percentage options.

    Earthquake insurance is usually based on a set percentage of the insured home value.


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    The Smartest Homeowner’s Insurance Move: A $100000 Deductible

      Did you know you can shave hundreds of dollars off your annual homeowners insurance bill by increasing your deductible? We dont just mean going from $500 to $1,000. Think big. $2,500. Already have a $2,500 deductible? Then think bigger. $5,000. $10,000. Or really big. Like $100,000.

      We have clients with deductibles of $100,000 fairly routinely on $5 million homes, says Mary Boyd, senior vice president and chief operating officer for ACE Private Risk Services. Some ACE clients with multiple homes and a significant net worth have deductibles in the millions of dollars, she says. What do they know that you dont?

      When you choose a deductible, youre picking a number youre willing to spend out of pocket if you suffer a loss. It should certainly cover what you think of as run-of-the-mill outlays . But if youre comfortable with laying out even more at the time of a loss, over time you can really save money on premiums.

      Choosing a low deductible is a characteristic mistake, says Jack M. Guttentag, a professor emeritus at the Wharton School of the University of Pennsylvania who runs What you want is coverage for the risks that you cant pay for yourself, he says. . Pick the number youre willing to spend out of pocket based on your resources–how much money you have coming in in income and how much money you have in the bank.

      How Much Should My Deductible Be

      Most homeowners get stuck on this question. A higher deductible usually means a lower premium , while a lower deductible means a higher premium. You can learn more about this relationship here.

      But which deductible-premium ratio is better?

      Most insurers set the average minimum homeowners deductible at $1,000, while others put the minimum at $500. Most insurers will allow you to raise the deductible if youd like.

      But does that mean you want the minimum deductible amount? Sometimes yes and sometimes no.

      How much can you pay out of pocket?

      Raising your deductible is the most effective way to lower your monthly premiums on your homeowners insurance. But, if you were to make a claim, you would have to pay that deductible before the insurance company will pay you. That means you need to still be able to afford that deductible.

      For example, if you were to have a $5,000 deductible, you would only start getting paid by your insurance company if the damage were more than $5,000. You would be responsible for 5 grand before the insurance company would even consider sending you a check. If you dont have $5,000 to pay out of pocket for an incident, you dont want a deductible that high.

      Ultimately, you want to balance the short-term cost you could potentially afford in the case of a claim with the long-term cost of your overall policy . The more you could pay out of pocket for your deductible, the more youd save in the long-term.

      Fewer claims means a higher deductible.

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      The Best Deductible For Home Insurance

      Everyone asks us what a good deductible is for home insurance, and we tend to recommend $1,000 or $1,500. It can lower your monthly premium a little bit and keeps the deductible within a reasonable range. If you have the financial means to buy a house then youll almost certainly have $1,500 in emergency savings to cover unexpected damages.

      If youre choosing between a $500 or $1,000 deductible then wed recommend going with the $1,000 option. The $500 option is more appropriate for a vehicle than a home, and you dont want monthly premiums getting too high.

      It can be very tempting to set a high deductible at the time of purchase because we all want to pay less for our home insurance. However, its important that you set your deductibles to an amount that you can comfortably manage in order to avoid complications.

      Hurricanes Wind/hail And Flooding

      What is an Insurance Deductible?

      The situation is generally similar for hurricane and wind/hail deductibles. Hurricane deductibles apply to damage solely from hurricanes. Windstorm or wind/hail deductibles apply to wind damage.

      The III reports that percentage-based deductibles typically apply to these coverages and run from 1% to 5% of the homes insured value. Some states give homeowners the option of paying a higher premium to carry a traditional dollar deductible. This is seldom allowed, though, if you live in a coastal area.

      Depending on your state’s law and your insurer’s protocols, a hurricane deductible may only apply once the National Weather Service designates a tropical storm as a hurricane or reports a particular wind-speed threshold. The only way you can be sure of the factor that triggers your exceptional deductible is to check your insurance policy or talk to your insurance company.

      The III lists 20 states, plus the District of Columbia, that have hurricane deductibles:

    • Alabama
    • Discover more at Hurricanes and home insurance guide.

      Flooding is a special case. Thats not covered by standard homeowners insurance. You can ask your insurance company whether it offers coverage for this additional risk or buy protection from the federal government’s National Flood Insurance Program . Flood deductibles under NFIP plans range from $1,000 to $10,000.

      Read more about flood insurance.

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      How Your Insurance Company Calculates Your Premiums

      Premiums are the amount you pay to buy insurance.

      When determining how much you’ll need to pay for premiums, insurance companies may consider factors such as:

      • the type of residence you live in, such as a single family home, semi-detached, condo, rental property, or seasonal residence
      • characteristics of your residence, such as materials your house is made of, age, size, location, replacement value
      • value of your property and contents to be insured
      • the distance between your home and a fire hydrant or a fire station
      • the crime rate in your neighborhood
      • your claims history
      • the type of policy and coverage you selected
      • the amount of your deductible

      A deductible is the amount of your claim that you agree to pay before your insurance company pays the rest.

      What Is A Disaster Deductible

      While wind, hail and hurricane damage are covered under your standard insurance policy, insurance for certain natural disasters must be purchased separately. These disasters have different deductible rules and your coverage or requirements to have them may depend on where you live. Heres a little more info on a few common disasters that arent covered by standard insurance policies.

      Most standard insurance policies dont cover earth movement, which includes earthquakes, mudslides and sinkholes. When it comes to sinkholes, one exception may be if you live in Florida, where insurers are legally required to offer some sort of protection from ground cover collapse. However, that may not always cover sinkholes, so its best to get more information from your insurer.

      When it comes to these deductibles, they are usually percentages of the insured value of the home. If you live in areas that are more prone to earthquakes, the minimum percentage deductible may be higher. For example, the minimum deductible for most California homes is around 15%.

      Another disaster that is not typically covered by most insurers is flooding. And though it isnt covered on a standard insurance policy, its a requirement for those who live in high-risk flood areas to have this type of insurance. If you arent required to have flood insurance, you may still want to consider getting it.

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      Extended Home Insurance Deductible Options

      Though your home insurance policy is pretty extensive in terms of the protection it offers, unfortunately not all perils are included. Below, we cover the endorsements and specific disaster coverage you can add to your policy to boost your financial security.

      All policy add-ons are known as endorsements, and offer extended protection on your current coverage or coverage for disasters not named in your original policy. Deductibles for endorsements are usually fixed dollar amounts.

      The Different Types Of Deductibles

      Home Insurance Deductible

      Depending on the insurance provider that you choose, your policy may also contain several types of deductibles that apply to specific causes of loss. These deductibles help manage claims costs in territories that are at a higher than average risk, which allows insurance providers to keep their premiums competitive.

      The most common additional deductibles include:

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      Why Is My Home Insurance Deductible So High

      Most insurers let you choose your deductible at $500, $1,000, $1,500, and even $2,000. Its something that you choose when you purchase the policy. If you want to change it then the best time to do that is at your policy renewal date, which occurs once per year.

      Some people choose high deductibles to save money on a monthly basis, but this can leave them between a rock and a hard place if they cant afford the deductible. Wed only recommend that option if you have a healthy reserve of emergency savings!

      What Is The Best Deductible For Homeowners Insurance

      There is no right answer to this. Many homeowners opt to have a $1,000 deductible because this amount tends to lower monthly premiums by a significant margin. Of course, if you do this, this means you will not be calling your insurance company for small claims. Learn how to tackle routine maintenance issues on your own, or to find a competent handyman whom you trust and can easily afford. Many homeowners end up spending about 1 percent of their homes purchase price on yearly issues. So, if you can, try to put that amount away in a savings account for when issues occur .

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