Homeowners insurance deductibles: What they are and how to choose one that's right for you
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- A homeowners insurance deductible is the portion you pay on a claim that's subtracted from your payout.
- The standard homeowners insurance deductible is $500 to $1,000, or it can be based on a percentage of the home's insured value.
- Your deductible may vary for standard homeowners versus flood and earthquake insurance.
- See Insider's guide to the best homeowners insurance companies.
Homeowners insurance protects your dwelling, personal belongings and offers personal liability coverage for injuries on your property. An insurance peril is an event that damages your home or belongings, such as a fire or a storm, that results in a financial loss. Before your insurance company compensates for a claim, you'll need to pay a deductible.
What is a homeowners insurance deductible?
A deductible is an amount the insured must contribute toward a loss claim. It is subtracted, or deducted, from your claim payout.
Your deductible can be a fixed dollar amount or a percentage of the total amount of insurance on your policy. The Insurance Information Institute (III) notes that the standard homeowners deductible costs $500 to $1,000. The declarations page of your insurance policy will state your deductible amount and whether it is a percentage or dollar amount.
Your deductible applies every time you file a claim and only to property damage (dwelling and personal property coverage), not personal liability coverage.
How homeowners insurance deductibles work
Dollar amount deductible: If your deductible is in the form of a dollar amount, this is subtracted from your claim amount. For example, say a storm damages your home and the insurance company calculates your loss at $15,000 to repair the damage. If your deductible is $500, the insurance company will pay you $14,500.
Percentage-based deductible: If your deductible is a percentage, like 2%, the percentage amount is deducted from your claim. If your house was insured for $500,000 with a 2% deductible, you would have $10,000 deducted from each claim. For example, if you have a $15,000 loss, the insurance company would deduct $10,000 and pay you $5,000.
Factors to consider when choosing a deductible
According to the III, the average annual premium for homeowners insurance in the US in 2019 was $1,272. One way to reduce your premium is to increase your deductible amount.
Having a deductible higher than $1,000 reduces your annual premium. However, if you have a loss and make a claim, you will have a larger portion deducted from your payout. This is an important consideration if your home is located in weather zones or disaster-prone areas — flood zones, hurricanes, tornadoes, wildfires, mudslides, hail, and earthquakes — where you can have multiple claims in a year.
Other things to take into account include:
- Your budget: Opting for a higher deductible could put you in financial hardship in the event you need to file a claim. Weigh the benefits against the cost and determine if you are willing to pay slightly higher premiums for a lower deductible based on your risk.
- The likelihood of a claim: Consider the probability of your home experiencing damage due to natural disasters or loss due to theft in your neighborhood. If the likelihood of you needing to file a claim is reasonably high, it might be a good idea to choose a lower deductible.
- How your insurer handles deductibles: Some providers will expect you to pay the deductible upfront, others will take your deductible from your claim compensation. How your insurance company takes your deductible can influence whether you are capable of paying a larger deductible.
Other types of homeowners insurance deductibles
In addition to your standard homeowners insurance deductible, there are deductibles for windstorm insurance riders, flood insurance, hurricanes, and earthquake insurance.
Flood insurance deductibles
Flood insurance is in addition to your homeowners insurance policy to cover flood-related damage. Flood insurance is required if you are in a high-risk flood zone. Flood insurance deductibles vary by state and insurance carrier, and your mortgage lender may have specific requirements for your flood deductible, according to the III.
Windstorm insurance deductibles
Both tornadoes and hurricanes produce wind and hail. Wind and hail are named insurance perils in standard homeowners policies. However, most insurers require an additional high-coverage windstorm rider and separate deductible if you live near coastal areas or the area in the central US known as Tornado Alley. The III says that wind/hail deductibles are typically 1% to 5%.
Earthquake insurance deductibles
Earthquake insurance, also known as "earth movement" coverage, is separate coverage. The Federal Emergency Management Agency (FEMA) has earthquake hazard maps that show the intensity and likelihood of seismic activity across the country. The III says earthquake insurance deductibles range between 2% to 20% percent, averaging around 10%. The California Earthquake Authority (CEA) offers coverage and deductibles vary based on the coverage selected for California residents.
When purchasing homeowners insurance, ask your agent about the various deductibles.