Updated September 3, 2019 . AmFam Team
Along with understanding how different types of coverage give your home the protection it needs, it’s important to understand how a homeowners insurance deductible is part of your policy. This way you can better financially prepare for the unexpected.
A homeowners insurance deductible is the amount of money you’ll pay out of pocket before your insurance company will pay on the claim. You’ll choose your deductible amount when building your policy, but you will only pay a deductible if you file a claim.
We’ve highlighted some key details about home insurance deductibles, so if the time ever comes to a file a claim, you know what to expect.
Home insurance policies come with a standard deductible and a wind/hail deductible. In certain locations, homeowners may be required to carry a minimum deductible amount for wind and hail damage. The minimum wind/hail deductible, if required, will depend on the location and value of the customer’s home.
We’ll use Missouri as an example. The minimum wind/hail deductible required is the greater of 1% of the home’s value or $2,500:
There are a number of types of homeowners insurance deductibles, but the two most common are:
A flat deductible is a fixed dollar amount that you’ll pay out of pocket for a covered loss. Technically, your insurance company subtracts the deductible from the amount claimed and that’s the portion of the claim you’ll pay.
For example, if your deductible is $1,000 and you file a claim because a hail storm damages your siding and it’s determined the cost to fix the damage is $9,000, your insurance company will pay out $8,000 for the claim and you’ll cover the remaining $1,000.
You can choose to have a percentage deductible, which means your deductible would be a percentage of the total coverage amount on your policy. For example, if your home is insured for $300,000 and your deductible is 2 percent, you’d pay $6,000 of the claim ($300,000 multiplied by 2 percent).
Consider this, if you have a lower deductible, you’ll pay less out of pocket in the event you file a claim. But you’re guaranteed to pay more in premiums over a longer period of time. If you have a higher deductible, you’ll pay more if you have a covered claim, but your premiums will be lower each month.
When choosing your deductible amount, compare what you can reasonably afford in the short term versus the long term. And consider what your annual household income is as well as other out-of-pocket expenses you’ll be expecting during the year. Choosing your deductible comes down to what you personally can afford in the short term or long term.
Many people opt for a higher deductible since this lowers the guaranteed amount they pay for their premium, whereas the deductible would only be paid if they file a claim. If you do choose a higher deductible, consider setting aside money specifically to cover your deductible in the event you have to file a claim. This way you’re financially prepared and not emptying your savings account that you planned on using for other emergencies.
Typically, homeowners choose a $1,000 deductible (for flat deductibles), with $500 and $2,000 also being common amounts. Though those are the most standard deductible amounts selected, you can opt for even higher deductibles to save more on your premium. Again, it’s what you can reasonably afford to pay given you file a claim and have to pay out of pocket.
Home insurance deductibles apply for every single claim you make, no matter how many you make. For example, if you have a $1,000 deductible and you make a claim for a branch that went through your roof during a storm, which costs $3,000 to fix, you would still have to pay $1,000 out of pocket, with your insurance company covering the other $2,000.
When you file a home insurance claim and it’s accepted, you’ll receive a settlement amount, minus your deductible. If your settlement amount is lower than your deductible, however, then you wouldn’t file a claim at all and instead pay out of pocket. Even if you think damage to your home might cost less than your deductible to fix, you should still contact your insurance agent to help get an estimate.
Some kinds of claims are typically exempt from the deductible or have a lower deductible applied to them, like scheduled personal property coverage claims or the Fire Department Service charge, but your standard homeowners insurance deductible will apply to most any claim you make.
The amount you choose for your deductible directly affects the amount of your insurance premium. Setting a high deductible results in a lower premium, which are your known out-of-pocket expenses. But you do run the chance of paying a higher, unknown expense. The lower you set your deductible, the higher your premiums. But if you file a claim you’ll pay less out of pocket before the insurance company covers the claim.
Filing multiple claims over a short amount of time can affect your home insurance premium or even cause your policy to not be renewed, so take into consideration what you can pay on your own before filing a claim.
The good news is, no matter how high or low you set your deductible, there are plenty of ways to save on your home insurance! From having smart home features to going paperless, learn about ways to save with our home insurance discounts. Want to learn more about your home insurance deductible? Connect with your American Family Insurance agent (Opens in a new tab) — they’ll guide you through your home insurance and help determine the best deductible for you.