5.1% of insured homes in the United States had a home insurance claim in 2019, according to ISO. Nearly all of these claims were due to property damage, including theft, which amounted to 97.2% of claims. The remaining 2.8% of claims were liability losses.
When you are shopping for a home insurance policy, it can feel like you're reading a different language. While reading up on home insurance coverage documents might not be your idea of a good time, it's worth it to understand the basic terms to make sure that you are getting the coverage you need and the best possible deal.
One key phrase in the world of homeowners insurance is "home insurance deductible." What is a deductible, exactly, and how does it work?
Let's take a look at what you need to know to make sure that you and your home are protected from risk.
A home insurance deductible is the amount of money that you will be responsible for paying for if you make a home insurance claim. This is not the same thing as insurance premiums. Insurance premiums are the fee that you pay to your insurance issuer so that they will provide you with coverage.
As a general rule, there is an inverse relationship between deductibles and premiums. The lower your premium is, the higher your deductible will be. On the other hand, the higher your premium is, the lower your deductible will be.
(Check out our guide to buying the best home insurance policy here!)
The best way to explain how insurance deductibles work is by giving an example scenario. Let's say that your home became damaged from an incident that cost $15,000 to repair. If the circumstance that caused the damage to your home is covered by your home insurance policy, then the repair costs will be partially covered by your insurer.
For example, let's say that your insurance deductible is $2,000. This means that you would pay for $2,000 of the repairs out of pocket, while your insurer would cover the remaining $13,000.
With both homeowners insurance and auto insurance, the deductible applies each time that you file a claim. However, there is a major exception in the state of Florida, where hurricane deductibles are applied once per season.
Deductibles typically don't apply to the liability portion of your policy. For example, let's say that you had property damage from a outdoor grill fire that your insurance covered. You would pay a deductible when it came to the property damage, but not for the liability portion of the policy if a guest got burned and sued or made a medical claim.
There are two primary kinds of home insurance deductibles. Your home insurance policy will define the type of deductible you have.
The first type is a dollar-amount deductible. This outlines a specific dollar amount that you will be responsible for paying if you make a claim. In the example above, the $2,000 deductible was a dollar-amount deductible.
The second type is a percentage-based deductible. Instead of defining a specific dollar amount, this type of deductible defines a specific percentage of the insured value of your home to be your deductible value.
For example, let's say that your deductible is defined as 2% and your home has coverage for $200,000. This means that if you make a claim, your deductible would be $4,000, which is 2% of $200,000.
When you are shopping around for homeowners insurance, you will need to consider what you can afford when it comes to both the premium and the deductible.
You will want to be considerate of your budget and whether or not you have an emergency fund. You will want to choose a deductible that you will be able to cover in the case of an emergency. It's important to not choose a deductible that is so high that you end up in a difficult financial situation if you have to make a claim.
Once you have determined the size of deductible you can afford, you can let your insurance agent know. They can then give you a quote for insurance premiums based on the deductible amount you have chosen.
Another thing to consider is how comfortable you are with taking risks. For some homeowners, it is worth the risk to sign on for a higher deductible in return for a lower annual premium. What this means is that if they end up making a claim, they will be responsible for a higher premium.
Other people might be willing to pay a higher annual premium so that they won't be stuck with a larger deductible if they need to make a claim.
Lastly, you'll also want to weigh out the cost difference if you decide to lower your deductible amount. There is likely a "sweet spot" between your deductible and your premiums that will be the best for your financial situation.
Understanding what a home insurance deductible is will help you find the right insurance coverage for you and your property. Some people might choose to have a higher deductible and lower premiums, while others might opt for lower deductibles with higher premiums.
Getting a home insurance policy is easy with Econosurance. All you have to do is request an instant quote, complete the application, and then enjoy the peace of mind you receive from having home insurance coverage.
If it's time for you to get homeowners insurance, you can learn more about our home insurance rates and policies here.