Let’s Talk Deductibles. What Are They? What Kind of Deductible Do I Have? Should I Make Changes?

March 28, 2019 | Blog

Deductibles are an important part of your homeowner’s insurance policy.  Understanding the role they play, and which types of deductibles are out there, is essential in making the right choice for your families insurance needs.  It can be a struggle to comprehend policies and options.  Below we have answered some common questions about deductibles to get you on the right track.

What is a deductible?

  • When you file a claim with your insurance, the amount you must pay before the insurer pays its part is called the deductible.

Where can I find out what my current deductible is?

  • Your deductible can be found on the front page, or declarations page of your insurance policy.

What kind of deductibles are there?

  • There are two types of deductibles.  Dollar-Amount and Percentage-Based.

Dollar-Amount Deductibles

These are a set amount, chosen when you purchase a policy.  No matter the amount of your claim, the deductible remains that set amount.  Typically, these deductibles are $500 to $1000 but, can be higher for a home with more value.  This is the most common type of deductible.

Example:

Deductible: $1000

Claim: $5000 in damages

$5000 claim – $1,000 dollar-amount deductible = $4000 claim payout from insurance company

Your insurance would pay $4000 for the damages

Percentage-Based Deductibles

These types of deductibles are becoming more common, especially in areas prone to natural disasters such as hurricanes, tornadoes, or flooding.  They are a deductible based on a percentage of the estimated replacement cost of the covered home.  The percentages typically range from 1-5%.

Example:

Deductible: 1% at a home valued at $200,000

1% of $200,000 = $2000

Claim: $5000 in damages

$5000 claim – $2000 percentage-based deductible = $3000 claim payout from the insurance company

Your insurance would pay $3000 for the damages

  • It is important to note that your policy may be a combination of the two types of deductibles.  Often, coverage on wind, hail, flood, or earthquake damage comes with different deductible terms.  These types of claim deductibles are most often percentage-based.

What kind of deductible is right for me?

  • It seems that more and more insurance companies are shifting to percentage-based deductibles to encourage homeowners to assume more of the financial risk and to deter those who might abuse policies.  This is especially true in disaster-prone areas where deductible rules may be different for the type of claim filed.  Wind, hail, flood, and earthquake coverage are the most common parts of a homeowner’s policy that may have specific or differing rules for deductibles.  Check your policy carefully and be sure to speak to your insurance agent to ask questions and find out exactly how your deductibles work.
  • In the meantime, most situations would find that paying a low dollar-amount deductible is in the best interest of the homeowner.  Just keep in mind that the more claims you file, the more you cost to insure, and thus, the higher your premiums may become.
  • Again, knowledge is always key so talking to your insurance agent is the best way to get a clear picture of your policy and to find out what changes you may want to make.

How can I make changes to my deductible?

  • In the event you must file an insurance claim, you will be responsible for the deductible.  You want to be financially prepared and informed to ensure it is an amount you are comfortable with.  Remember, there are several options out there and talking to your insurance agent may help you feel more secure in your coverage.  Agents can run quotes with various deductibles to help determine what is the best value for you.  Changes can be made easily, but the key is to know your policy, know what you will be required to pay, and to be financially prepared should the need arise to file a claim.

We have answered many of the common questions associated with homeowner’s insurance deductibles.  Knowing your options and seeking out the best coverage for you and your family will best prepare you for any emergencies that may come.

 

Related Blog Posts:

Getting to Know Your Insurance Policy

What is a Deductible? How Does It Work?

What is Best When Choosing Home Insurance Deductibles?

 

Additional Resources & References:

https://blog.central-insurance.com/2014/07/14/what-is-a-percentage-deductible/

https://www.valuepenguin.com/types-homeowner-insurance-deductibles

https://lendedu.com/blog/average-homeowners-insurance-deductible/

https://www.iii.org/article/understanding-your-insurance-deductibles

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