Understanding Your Homeowners Insurance Deductibles

Make sure you understand how your homeowner insurance deductible calculations impact your premium and your out of pocket expenses. Remember that a deductible is the amount of money you as an insured pay on a loss before the insurance company takes responsibility.

There are two deductible calculations used by insurance companies.

Homeowner Insurance Deductibles as a Percentage

This relatively new deductible calculation began on earthquake coverage in the west in the early 1990′s. It also began showing up in windstorm and hurricane coverage in other areas of the country.

It hasn’t begun showing up to too much on standard perils like fire and theft but it may just be a matter of time before that happens.

The way deductible percentages work is that the deductible is usually 1 to 5% of the insured value of the home. So, if your home is insured for $300,000 and you have a 2 percent deductible, this means you’d have to pay out $6000 before the insurance company begins paying out. This is far more costly than the traditional deductible.

Traditional Homeowner’s Insurance Deductibles

Traditional homeowner’s deductibles are a flat amount. For example, let’s say you have a $500 deductible, and a tree falls on and damages your home as a result of a lightning strike. The damage is $5000. You pay the first $500. The insurance company pays the remaining $4500.

Raising your deductible to as much as you can afford, may be a good strategy to save on your homeowner’s premium. For example:

If you increase the standard $250 homeowner deductible by the following amounts, it will have the following impact:

• $500- 10 to 12 percent premium reduction
• $1000- 20 to 25 percent
• $2500- up to 30%
• $5000- up to about 37%

The bottom line is that the higher deductible on your policy, the lower your homeowner’s insurance premium will be. Another way of looking at it is that the more risk you absorb, the less your insurance will cost.

Some deductibles such as a hurricane coverage deductible in certain regions of the country, may be set at a percentage of your home value as discussed above. You may be unable to change that percentage.

Steve Wyrostek -HomeownersInsurance.org Expert A 20 year plus veteran of the insurance industry, Steve managed departments in the personal and commercial lines areas of major insurers. He’s familiar with how insurance—ranging from boat to workers compensation—works.