Your homeowners insurance policy may be able to help you if someone steals your computer or your home is damaged by a storm. However, it will not cover everything. You will likely have a homeowners insurancedeductible which can reduce your claim payout. This is how it works.
What’s a homeowners insurance deductible?
The homeowners insurance deductible is the amount you are responsible for paying out-of-pocket in case of a claim. Let’s say that you have a $1,000 policy deductible and file a storm damage claim for $8,000; your insurer will pay the difference. Your insurer will pay $7,000 towards the repair costs, while you’ll cover the $1,000 remaining.
When you purchase homeowners insurance, there will be several deductible options. You’ll pay less for your policy if you select a higher deductible. According to NerdWallet’s rate analysis, increasing your deductible from $1,000 up to $2,500 can help you save 12% on your premium.
Make sure you have enough money to cover the cost of a claim.
How do you pay your deductible for homeowners insurance
Unless you file a claim, you won’t have to pay a deductible. A deductible is only applicable to certain sections of your homeowners insurance.
Your deductible is not paid to your insurance company. Instead, your claim payout will be paid by the insurer and your deductible amount towards any recovery. This could be buying new items to replace those that are damaged or hiring a contractor to fix or rebuild your house.
When deciding whether or not to file a claim, it is wise to take into account your deductible. If your deductible is $1,000, and you file a claim for $1200 in damage, you will receive $200.
Although this may seem like a good deal, remember that insurance companies will often increase your premium once you file a claim. Your insurer could cancel your $200 payout and increase your rate at your next renewal.
Tip
Each claim will have a deductible. If you file two claims for roof damage in May, and one for theft in July. You’ll have to pay the deductible for both.
What is the average homeowners insurance deductible?
The typical homeowners insurance deductible ranges from $500 to $2,000. However, lower or higher amounts may be possible.
Not all home insurance deductibles can be set at a flat dollar amount. Some deductibles are percentages of the insured value of your home, such as 1% and 2%. Here are some important facts about percentage deductibles.
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These deductibles are often needed for natural disasters like hurricanes, wind, and hail. In these cases, the dollar deductible may be called an “all perils” deductible. )
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Even a small amount can add up to significant expenses. Let’s take, for example, a $300,000.00 home with a hurricane deductible of 5%. You would be responsible for $15,000 if your home is damaged by a storm before your insurance company begins paying.
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Your deductible increases if your home’s insured value goes up. For example, an addition or renovation could increase your home’s insured value to $325,000. You would now need to pay $16,250 before your insurance kicks in.
Flood and earthquake insurance deductibles
Your mortgage lender may require that you purchase flood insurance, depending on where you live. You can reduce your flood insurance premium, just like homeowners insurance. However, you can choose a higher deductible. But, this could make it more risky if you have a flood policy.
Flood insurance policies usually have two separate deductibles. One for the structure of your home, and one for your belongings. If flooding causes damage to either of these, you will need to file two separate claims and pay two separate amounts.
If you purchase earthquake insurance, your deductible burden may also be very high. The California Earthquake Authority offers up to 25% deductibles on homes with insured values of $300,000. This means that you could be responsible up to $75,000 for damage to a $300,000.00 house.
Additional building and personal deductibles might also be available for earthquake insurance policies.