What is a Deductible for Homeowners’ Insurance?
A deductible is the term for the out of pocket money you pay towards damage repairs before your insurance company pays out anything for your claim. This may be the only money you owe on the claim.
When you purchase your insurance, you will be given a choice of deductibles. A higher deductible results in lower premium costs. A lower deductible will mean higher premium costs.
How Does a Deductible Work?
You only need to pay a deductible when or if you file a claim. After you pay your deductible, the insurance company will send you a check to cover your claim expenses. An example is if you have a $1000 deductible and you have a claim that amounts to $17,000, you must pay $1000, and the insurance company pays $16,000. The deductible applies to each separate claim. If you have more than one claim in a year you would need to pay a deductible for each one.
The deductible is different from the premium, which is a set amount you pay in predetermined intervals, such as yearly, monthly or quarterly.
What are the Types of Homeowners’ Insurance Deductibles?
- A Flat Deductible
With a flat deductible you will pay the same amount each time a claim is filed. This is the most common type and will apply to most situations.
- A Percentage Deductible
If your insurance policy has a percentage deductible, you may pay between 1% and 10% of the value of your home.
- A Disaster Deductible
Sometimes standard insurance policies don’t cover natural disasters or storm damage. Because of this you may need to purchase a separate policy for disasters such as earthquakes, floods, windstorm or hail and sinkholes. You may need to pay a special percentage deductible for these events. It could be 1-20% of the insured value of the home and varies by area.
The Impact a Deductible has on Insurance Payment Installments
If you choose a lower deductible it will result in a higher premium (installment) cost but saves you money when you file a claim. If you choose a higher deductible, you will have a lower installment cost, but you will have to pay more when you file a claim.
How to Choose the Right Deductible
You need to ask yourself some questions.
- How much of a deductible can I reasonably afford?
- What risk tolerance am I comfortable with?
It is important to compare different insurance quotes to determine the best solution for your budget.
You may also ask yourself what is the best deductible? The best answer to that question is the deductible you can reasonably afford. If you have a mortgage, your mortgage company may stipulate a minimum deductible. You need to decide if your budget can afford the payment and if you have funds to pay for the out-of-pocket expenses in the event of a claim. Only Plans Claims & Consulting is a public adjuster firm serving all residential and commercial clients. If you have a question regarding this blog or our services, please contact us at (210) 887-5409. We would love to help you.