Understanding your home insurance deductible can help you decide how best to protect what could be the most expensive purchase you’ve ever made. Unfortunately, it’s not always easy to understand the fine print of your font. Read on to learn how a homeowner’s deductible works, how it affects your premium, and how much deductible you might need.
Simply put, a home insurance deductible is the amount a homeowner must pay before their insurance steps in to cover the remaining expenses of a claim. The deductible is expressed as a fixed amount – usually $500 to $2,000, but can be higher – or as a percentage of the insured value of the home. With home insurance, the deductible applies each time you make a claim. Typically, insurers will deduct your deductible from the settlement amount when they issue payment.
Owners can choose a deductible amount when signing up for a new contract and can change this amount at any time. When deciding which amount is right for you, consider the financial implications of your decision. A high deductible means you’ll likely get a lower insurance rate, but it also means you’ll have to cover more expenses before insurance pays for the rest.
After you file a claim, your insurance company will send an adjuster to assess the damage and determine if it’s covered by your policy and how much the repairs will cost. If the adjuster estimates that $7,000 of damage occurred and your deductible is $2,500, your insurance company will reimburse you $4,500.
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The two most common types of home insurance deductibles are:
- Lump sum or dollar amount. These use a specific dollar amount that you must cover when filing a claim. This amount varies by insurer and policy, but expect a minimum deductible of $500 to $1,000, according to the Insurance Information Institute (III).
- Percentage based. These use the insurance value of your home and a mutually agreed-upon percentage to determine the dollar amount owed when filing a claim. For example, a homeowner who insures their home for $250,000 and has a 2% deductible will have to pay a $5,000 deductible before the insurance takes effect.
Less common are split deductibles, also called hybrids, which combine the principles of flat rate and percentage deductibles depending on the type of damage.
Standard home insurance policies generally cover damage from perils such as lightning, fire, wind and hail. Earthquakes and floods are excluded, requiring separate or supplemental coverage. Depending on where you live and the policy you hold (including add-ons), your home insurance may include:
- Hurricane Disaster Deductibles are needed in many Atlantic and Gulf Coast states where hurricanes occur frequently. These are usually percentage-based and can range from 2% to 10% of the home’s insured value, depending on your insurer and state of residence.
- Hail and storm deductibles are common in Midwestern and Plains states where tornadoes and other storms occur. Deductibles generally range from 1% to 5%.
- earthquake insurance is sold in California, the Pacific Northwest and other states where earthquakes are common. Most insurers use a percentage-based deductible which can vary from 10% to 20%, although some policies may offer a lower percentage rate.
- Flood insurance deductibles can be either a fixed dollar amount or a percentage and can vary widely depending on location and provider. Flood policies generally have separate deductible amounts for physical accommodation and the contents of your home.
What is the standard deductible for home insurance?
Although there is no one right answer as to how much your deductible will be, amounts generally range between $500 and $2,000. Some insurers offer higher deductibles of $5,000 or more.
Does my deductible affect my home insurance rates?
Yes absolutely. The general rule is that the higher your deductible, the lower your insurance premium and vice versa. A homeowner with a $5,000 deductible will pay less than if he had a $500 deductible because the insurance company is assuming a higher level of financial risk if he files a claim.
Is home insurance tax deductible?
In most cases, you cannot deduct the cost of home insurance for your primary residence from your income taxes, according to the Internal Revenue Service (IRS). However, you may be eligible for a deduction for premiums paid on rental property that you own as an investment. You can also benefit from a tax deduction if you are self-employed and work from home.
Allowable deductions include local and/or state property taxes, qualified mortgage interest, and private mortgage insurance (PMI). Talk to a tax professional to find out what home-related deductions you may be entitled to.
Can I waive my home insurance deductible?
It depends on the insurer. Some policies offer clauses called deductible waivers. These waivers specify the circumstances under which you will not have to pay your deductible, such as a fire that consumes the entire structure and its contents.
For more information on home insurance, please see our other guides:
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