Homeowners Insurance Deductibles, Explained

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Setting yourself up for financial success is a huge part of home ownership. While your home needs to be protected, you don’t want to pay more than you need for proper coverage. On the other hand, you also don’t want to drown in repairs and replacements should something happen to your home or belongings. To make sure you’re receiving the coverage you need without paying too much upfront, it’s critical that you pay close attention to your deductible amounts.

Below, our insurance experts have outlined everything you should know about homeowners insurance deductibles. This includes the types of deductibles available, how that coverage extends to your other policy add-ons and expert tips for saving on your premiums. Need to take a step back and determine how much homeowners insurance you need before diving into deductibles? We’ve got your back there too.

What is a homeowners insurance deductible?

A homeowners insurance deductible is the amount you’ll pay out of pocket before your insurance coverage kicks in. Say that your home was damaged in a fire (or other named peril), and you previously set your dwelling deductible limit to $1,000. If the confirmed damage comes to $3,000, you’re on the hook for the first thousand dollars and your insurer pays the rest.

A homeowners insurance deductible is the amount you will have to pay out of pocket before your insurance coverage kicks in.

As a refresher, your HO-3 policy covers your dwelling, personal belongings and personal liability in the event someone gets injured on your property and seeks financial or legal action. When creating your policy, you’ll only be asked to set deductible amounts for dwelling and belongings. The liability portion of your policy does not require a deductible, as you aren’t required to pay out of pocket before your insurer begins to cover the cost.

So how does your insurance deductible affect your annual insurance cost? They are closely related, meaning you can change how much you want to pay each year by raising or lowering your deductible limits. If you are willing (and financially able) to pay more upfront if an issue occurs, you can save a lot on annual fees. However, if you don’t want to pay much out of pocket for deductibles, your insurer will require a higher yearly premium to help cover some of those costs.

If you’re interested in learning more about insurance deductibles, but you have a condo or are a landlord, don’t fret. Our HO-6 insurance policy and landlord insurance posts covers everything you need to know.

Types of home insurance deductibles

In addition to deciding how much you want your deductible to be, you also need to consider the type. Typically, you’ll be offered a few options: fixed dollar amount, percentage or split deductible.

  • A fixed dollar amount means you can select the exact amount you want to pay upfront in the event you need to file an insurance claim.
  • Percentage deductibles are based on the Coverage A value of your home.
  • Split deductibles mean that some of your coverage categories are under a dollar amount deductible, while others are under a percentage.

Increments for fixed dollar deductibles are usually available in increments of $500 or $1,000, and the amount you choose will affect the cost of your annual premium. If you want to avoid paying too much out of pocket in the event of a loss, you should choose a lower fixed dollar amount. However, if you want to save on your premium and are okay with paying a little more for repairs as they happen, you can raise your deductible limit to accomplish that.

Percentage deductibles differ from fixed dollar amounts because they are based on the Coverage A value of your policy. So if you have a deductible of 1% and your home is insured for $250,000, the amount of the money you’d owe would be $2,500. Then, your insurance provider will pay the rest.

For split/hybrid deductibles, you’ll see percentages for specific types of perils (like hail, wind or hurricanes) while everything else falls under a fixed dollar amount. These options are customizable depending on your needs, so make sure to talk with your insurance provider about what options make the most sense for you.

Another factor that may affect your home insurance deductible rate is your home’s location. If your home is located in a high-risk area (think the coast, or earthquake/flood zones), you’ll often be required to increase your deductible or add-on coverage. While this varies by state, many lenders won’t approve your mortgage until you’re properly protected for natural disasters that are common in your area.

To make sure you’re setting yourself up for long-term success, it’s smart to limit your deductible to no more than you can afford to pay upfront. While you may not actually need to file a claim often, when you do, you want to make sure that it doesn’t completely drain your savings before insurance coverage comes into play.

Extended home insurance deductible options

Though your home insurance policy is pretty extensive in terms of the protection it offers, unfortunately not all perils are included. Below, we cover the endorsements and specific disaster coverage you can add to your policy to boost your financial security.

All policy add-ons are known as endorsements, and offer extended protection on your current coverage or coverage for disasters not named in your original policy. Deductibles for endorsements are usually fixed dollar amounts.

Endorsements

Endorsements are additions to your standard home insurance policy that offer greater protection for items already covered or new coverage on items not included in your original policy. This includes add-ons like water backup coverage, city ordinance changes, identity theft protection, shingle matching programs, appliance insurance and extended replacement costs.

Sometimes noted as floaters or riders, endorsements typically have their own deductibles. This means that if damage occurs to your home or belongings that falls under an endorsement policy, you’ll pay that set deductible amount rather than the deductible set on your dwelling or personal property coverage.

Disasters

Many insurance companies offer additional endorsements related to natural disasters — these help give you extra support should the worst occur. Keep reading to learn about earthquake, flood, hurricane, wind and hail policies and their deductible limits.

Earthquake deductibles

While not an issue for all homeowners, earthquake policies are required in high-risk areas. The typical deductible amount for earthquake coverage can range from 5% to 25%. However, if you’re in a state prone to earthquakes, you may have to hit a certain deductible limit on your policy (usually 10% – 15%) before you can buy a home.

Flood deductibles

Flood insurance is another endorsement often recommended to homeowners who live in a floodplain or near a body of water, and run anywhere from 1% to 5% of your home's insured value. It offers protection for your home’s structure and your personal belongings, though there are a few things worth noting. 

For instance, some damage that occurs below ground level isn’t covered (e.g., in your basement). Flood insurance policies are also particular about determining the cause of damage, so make sure that you can prove your claim was caused by a flood and not owner neglect before filing. Before beginning to make repairs, make sure to contact your insurance agent and send over any pictures, videos and weather reports you have to support your claim.

Hurricane deductibles 

Anyone who lives on the coast knows that hurricane insurance is vital. Often required by either your insurance company or state government, this add-on protects your home and belongings from any damage sustained from a hurricane. 

The bonus to hurricane insurance that isn’t available on most other natural disaster policies is the deductible filing limits. If your home is damaged multiple times within one hurricane season (June through November), you only have to pay your deductible (which can range from 1% to 5%) once. Depending on your state, you may have to pay a different set deductible amount, as many states in high-risk hurricane zones set their own state-wide limits.

Wind and hail deductibles

Similar to other disasters mentioned above, how much wind and hail protection you need (typically 1% – 5%) will depend on your location. Homes in areas prone to tornadoes and bigger storms are typically required to have higher deductibles, which helps protect insurance agencies in the event of a bad storm.

What is the average deductible amount?

Though it depends on the type of deductible you choose, you can expect to pay 1% – 2% of your home’s insured value. With fixed dollar amounts, standard policies suggest a $500 – $2,500 limit. Which option you choose will affect your annual cost, as high deductibles will lower your annual premiums but smaller deductibles will give you a higher premium.

What deductible limit is right for me?

It’s a good idea to take into account your financial situation when deciding what to set as your deductible limit. If you have a lot saved and generally have money left over each month, you may want to boost your deductibles to save on the yearly premium. Though this means you’ll owe more when you file a claim, if you don’t think you’ll need to file often, it can lead to big savings over time.

If you’re on a budget or don’t have much money coming in each month, it’s best to lower your deductible limits. While you’ll be paying a bit more in premiums, the amount is small compared to the deductible requirements for a disaster (especially if multiple issues pop up at once). You don’t want to bankrupt yourself to try to save a couple hundred bucks on your premium each year.

There’s a lot to factor into your decision on what homeowners deductible limit is best for your needs. Conducting proper research is crucial to make sure that your home is adequately protected in the case of a fire, break-in or a natural disaster. Want to see how your current policy deductibles compare to what you can get at Hippo? Head over to our homepage to get a quote for your homeowners insurance deductibles in less than 60 seconds — really!