What Is a Homeowners Insurance Deductible

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When disaster strikes, the cost of your damages and losses can be exorbitant. This is why it is so important for homeowners to protect themselves and their belongings with homeowners insurance.

The amount of money you have to pay to cover repairing and replacing your items when you file a claim depends on your deductible. It is always important to consider the insurance deductible before committing to a new insurance plan.

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What is a deductible?

An important part of your homeowners insurance policy is your deductible. This applies not just to homeowners insurance but also renters insurance, car insurance and life insurance.

A homeowners deductible is the amount that you are required to pay before your insurance coverage kicks in to pay for qualified losses. Unless your plan specifies otherwise, a deductible is not usually reimbursed; it’s a minimum amount you pay toward the total damages. Once you pay your deductible, you can file a claim with the insurance company to pay the rest.

For example, if you have a $5,000 deductible and the total damages for your home are $20,000, you would pay $500, and your insurance claim would pay the remaining $15,000.

Types of homeowners insurance deductibles

Insurance companies can offer different kinds of deductibles, but they most commonly present them as either a dollar-amount deductible or a percentage-based deductible. A dollar-amount deductible is the most common because it provides one set figure that you will have to pay.

A percentage-based deductible requires you to pay a percentage of the total damages. For example, if you have a 10% deductible and the total losses are $10,000, you will have to pay $1,000 before your insurance company will help with the rest.

There may be times when a percentage-based deductible is best. Depending on the total cost of the damage, it’s possible that a percentage of the damages is cheaper than the total cost of the project. If the total damages are $5,000 and you have a 2% deductible, you would only have to pay $100 instead of the average $500 or $1,000 flat-rate deductibles.

What are disaster deductibles?

Not every type of disaster is covered by your homeowners insurance policy. The disaster deductible does not include what is normally covered under your insurance; it is a separate form of coverage that is designed to cover what your insurance does not.

Disaster loss applies to damages that occur within an area that has been formally declared as a federal disaster area by the president. This is often the result of natural disasters such as hurricanes, wildfires and floods.

These deductibles are similar to casualty loss in that they are also tax-deductible. However, disaster deductibles offer more options for filing and claiming your tax refund.

Disaster deductibles also apply to commercial property owners and renters.

How to choose which deductible is right for you

While it may not seem like a big deal when you are purchasing your insurance, the kind of deductible you choose can make an enormous difference in how much you have to pay in an emergency. If you aren’t careful, your insurance deductible can end up costing you more than your losses.

The kind of home you own will determine how much coverage you need. More expensive homes or people with more expensive items will need more coverage to fully replace or repair damages.

It’s also important to inventory your belongings and calculate the estimated value. You can use this figure when creating your homeowners insurance policy to ensure you purchase enough coverage for your things.

Once you determine how much coverage you need, you can determine what kind of deductible is most appropriate for you.

How deductibles affect your premium

When you buy an insurance plan, there are different deductibles that are offered with each plan. The lower your deductible, the higher your monthly premium will be. Standard deductibles are generally between $500 and $2000.

If you have filed claims in the past, this can also affect the cost of your coverage and what options you are given for your deductible. Even if an accident was not your fault, insurance companies will use your insurance claim history to assess whether you are a high-risk candidate for homeowners insurance. You might have to choose a higher deductible to afford coverage.

For some homeowners, insurance is only an option if it comes with a low monthly premium. Tight finances and a strict monthly budget can reduce your options and make affordability your top priority for coverage.

Either way, it’s crucial that you choose a deductible that you will be able to afford. If a fire sweeps through your home and leaves you without a thing in the world, the last thing you want to worry about is paying a $5,000 deductible.

Disasters aren’t common, but they do happen. That’s why it’s important to make sure you and your home are protected with the best homeowners insurance coverage for your home.