Understanding Homeowners Insurance Deductibles

Whether shopping for a new homeowners insurance policy or renewing an old one, you must consider the deductible. 

In general, accepting bigger deductibles can mean lowering your premiums. But this approach can come with some risks, especially if you must use your policy for a big claim. 

What is a homeowners insurance deductible?

How Home Insurance Deductibles Work 

A deductible is technically defined as the amount of money you’re responsible for paying when an insured loss happens. Your fee is subtracted from your insurance company’s payout. 

State insurance regulations dictate how deductibles are incorporated into policies and how they are implemented. Rules can vary accordingly.^[1] But typically, a deductible represents the maximum amount you’ll pay for a claim. 

Consider this example. Your home is damaged in a kitchen fire, causing $20,000 in damage. Your deductible is $5,000. Your insurance company will cover $15,000, and you must pay the remaining $5,000. 

Deductibles are applied per claim, not per year. If you have multiple issues in the same year (such as a fire, a theft, and a hailstorm), each one comes with a separate deductible. 

Who Pays a Homeowners Insurance Deductible?

A homeowner pays an insurance deductible. But typically, you’re not required to prove you have paid it. 

After a covered loss, you will file a claim. The insurance company will examine that claim, settle it, and cut a check with your agreed deductible subtracted. You must provide the rest of the fee to pay your contractors, replace your items, and otherwise move forward. 

Deductible vs. Out-of-Pocket Expenses

A deductible is your agreed-upon portion of a final claim amount. Out-of-pocket expenses stem from claims that are smaller than your deductible. 

Imagine a homeowner with a $1,000 deductible and $500 worth of damage to a window. That person may choose to pay for window replacement out of pocket rather than submitting a claim the insurance company will pay no portion of. 

If you can afford it, a higher deductible could be useful, as it will prompt you to take on more out-of-pocket expenses. Experts say filing a claim can raise your rates by 9%, and two claims can raise it by 20%.^[2] Accepting repairs without filing claims can save you money over time. 

Types of Homeowners Insurance Deductibles 

Two main types of deductibles appear on homeowners insurance policies. Understanding how they work could help you choose the version that’s right for your risks and budget. 

Fixed Deductible (Flat Deductible) 

You and your insurance company agree on one amount you’ll pay for each claim. After a covered event, your insurance company will cut a check with that amount deducted, and it will not change over time. 

This type of deductible could be right for you in the following situations:

• Changing market: If your home is rapidly gaining value, your deductible goes up accordingly with a percentage deductible. A fixed version won’t get bigger, even if your home becomes more valuable. 
• Little flexibility: Your budget won’t allow you to spend more on covered events each year. 
• Higher premiums: You’re willing to spend more on your premium to pay less on a deductible. You could set the lowest deductible possible and know you’re covered in an emergency. 

Percentage Deductible 

You and your insurance company agree on a percentage of your home’s value you’ll pay for each claim. The more your home’s insured value, the more you will pay. 

After a covered event, your insurance company will cut a check with that percentage amount deducted. The percentage could change as your home’s value changes and your policy amount gets bigger accordingly. 

This type of deductible could be right for you in the following situations:

• Willingness to accept risks: You may face losses that are larger than your deductible. Accepting these issues as out-of-pocket claims could mean filing fewer claims and potentially saving money at renewal time. 
• Hefty amount in savings: If you face a large claim, you could face a large bill that must be paid before contractors finish their work. If you’re confident you can cover these bills, this could be a good approach. 
• Smaller premium: This approach typically means accepting a higher deductible. Your insurance company could reward you with a smaller premium.

Tips for Choosing the Best Home Insurance Deductible Option 

There are no right and wrong choices, in terms of deductibles. A version that is right for you could be wrong for someone else. You must examine your circumstances carefully to make the right choice. 

These tips can help you determine which is right for you:

• Examine your savings account. You can’t predict when you’ll need your homeowners insurance. If something terrible happens, you must be able to cover your deductible. A percentage-based approach can require a larger amount of money. 
• Determine your budget. A larger deductible typically means a smaller premium. This can help your monthly budget quite a bit.
• Assess your risks. Do you live in a neighborhood riddled with crime? Are storms common in your area? Does your home seem able to crumble at a moment’s notice? The more claims you anticipate filing, the lower you might want your deductible to be.

Frequently Asked Questions About Homeowners Insurance Deductibles

We’ve compiled some of the most frequently asked questions about homeowners insurance deductibles. 

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Reviewed by Kristopher Kane

Kristopher Kane is a career freelance writer with over 15 years of experience and a broad portfolio encompassing various topics within the insurance industry. He has written for both B2B communication and consumer-level customer engagement.