Understanding Your Insurance Deductibles

How Deductibles Work

Dollar Amount Deductibles

A specific dollar amount would come off the top of your claim payment. For example, if your policy states a $500 deductible, and your insurer has determined that you have an insured loss worth $10,000, you would receive a claims check for $9,500.

Percentage Deductibles

These generally only apply to homeowners policies and are calculated based on a percentage of the home’s insured value. So, if your house is insured for $100,000 and your insurance policy has a 2% deductible, $2,000 would be deducted from any claim payment. In the event of a $10,000 insurance loss, you would be paid $8,000. If you have a $25,000 loss, your claim check would be $23,000.

All Deductibles

Note that the deductible applies each time you file a claim with both auto insurance and homeowners policies. The one major exception to this is in Florida, where hurricane deductibles specifically are applied per season rather than for each storm.

Deductibles generally apply to property damage, not homeowners’ liability portion or auto insurance policies. For example, a homeowner’s policy deductible would apply to property damaged in a rogue outdoor grill fire. Still, there would be no deductible against the policy’s liability portion if a burned guest made a medical claim or sued.

Raising Your Deductible Can Save Money

One way to save money on a homeowners or auto insurance policy is to raise the deductible, so if you’re shopping for insurance, ask about the options for deductibles when comparing policies.

Increasing your auto insurance deductible from $200 to $500 can reduce collision and comprehensive coverage premium costs. A $1,000 deductible may save you even more.

Most homeowners and renters insurers offer a minimum $500 or $1,000 deductible. Raising the deductible to more than $1,000 can save on the cost of the policy.

Of course, remember that you’ll be responsible for the deductible in the event of loss, so make sure you are comfortable with the amount.

Homeowners Disaster Deductibles

Wind/hail and hurricanes are covered by standard homeowners insurance; homeowners purchase flood and earthquake policies separately. However, each of these disasters has its own deductible rules. If you’re in an area that’s high risk for one of these natural disasters, understand how much of a deductible you’ll need to pay if a catastrophe strikes. Start here, check your policies, and speak to your insurance professional to learn exactly how your deductibles work.

• Hurricane deductibles. In hurricane-prone states, special deductibles may apply for homeowners insurance claims when the cause of damage is attributable to a hurricane. Whether a hurricane deductible applies to a claim depends on the specific “trigger” selected by the insurance company. These triggers vary by state and insurer and usually apply when the National Weather Service (NWS) officially names a tropical storm, declares a hurricane watch or warning, or defines a hurricane’s intensity regarding wind speed. Hurricane deductibles are generally higher than other homeowners policy deductibles and usually take the form of a percentage of the policy limits. In some states, policyholders can pay a higher premium in return for a traditional dollar deductible; however, in high-risk coastal areas, insurers may make the percentage deductible mandatory.
• Wind/hail deductibles work similarly to hurricane deductibles and are most common in places that typically experience severe windstorms and hail. These include Midwestern states (like Ohio) and around Tornado Alley (which goes through Texas, Oklahoma, Kansas, and Nebraska). Wind/hail deductibles are most commonly paid in percentages, typically from 1% to 5%.
• Flood insurance offers a range of deductibles.  If you have—or are considering buying—flood insurance, ensure you understand your deductible. Flood insurance deductibles vary by state and insurance company and are available in dollar amounts or percentages. Furthermore, you can choose one deductible for your home’s structure and another for its contents (note that your mortgage company may require that your flood insurance deductible be under a certain amount to help ensure you’ll be able to pay it).
• Earthquake insurance has percentage deductibles that are anywhere from 2 percent to 20 percent of the replacement value of your home, depending on location. Insurers in states with higher than average risk of earthquakes (for example, Washington, Nevada, and Utah) often set minimum deductibles at around 10%. In California, the essential California Earthquake Authority (CEA) policy includes a deductible that is 15% of the replacement cost of the main home structure and starts at 10% for additional coverages (such as on a garage or other outbuildings).

Source:  Insurance Information Institute