With about 85% of homeowners in the U.S. carrying homeowners insurance coverage, home insurance claims are common in the U.S. For instance, in 2018, about 5.7% of policyholders filed a home insurance claim, according to the Insurance Information Institute (III). Take note that before you receive compensation for an insured loss, your insurer may require you to cover a portion of the loss out of pocket. In other words, your insurer may require you to pay a deductible. Here’s some more information on this topic.

What Is Insurance Deductible?

According to the National Association of Insurance Commissioners (NAIC), a deductible is a specified amount of money paid by policyholders before receiving compensation for an incurred loss. For instance, a $1,500 deductible means you pay for the first $1,500 of insured losses out-of-pocket. In general, high deductibles mean lower premiums and vice versa. However, you should choose a deductible that you can afford to pay. Take note that you can pay a deductible either per occurrence or annually when renewing your home insurance plan.

How to Choose Home Insurance Deductible

The average cost of homeowners insurance in the U.S. is about $1,200. The actual figure depends on factors such as state laws, location, size of risk, and cost of rebuilding. Regardless of the cost of your home insurance coverage, you can significantly lower it by mitigating the risk, asking for discounts, and raising your deductible. Below are two types of deductibles:

• Percentage-based deductible-

  This is the size of deductible that you calculate as a percentage of your home insurance coverage. For instance, if your deductible is 1% and your coverage is worth $1 million, then you will pay $10,000 out of pocket when you file an insurance claim.

• Flat-rate deductible-

  Based on the insured value of your home, a flat-rate deductible remains fixed throughout the policy period, meaning the only way to change it is to change your coverage.

In order to determine the most suitable deductible option, you should consider the following factors:

• Value of your home-

  If you want to pay lower premiums for your coverage, make sure to choose a percentage-based deductible, especially if your home value is big. For instance, choosing a 1% deductible on a $1 million-worth policy will give you a $10,000 out-of-pocket burden. This is better than a $2,500 flat-rate deductible, which will neither cover much nor lower your premiums. Even so, only go for this option if you can comfortably pay $10,000 out of pocket.

• Intention to increase your deductible in the future-

  Unlike a percentage-based deductible, a flat-rate deductible, as the name suggests, offers no option for adjustment. Therefore, if you intend to increase your deductible over time, you should choose the percentage-based deductible.

• Financial ability-

  Depending on the size of your coverage, you can either choose a percentage-based or flat-rate deductible if it favors your financial strength. For instance, a $1,000 flat-rate deductible on a $500,000 policy is easier to pay than a 1% deductible on the same policy.

In rare cases, you can purchase a deductible-free homeowners insurance policy , meaning you would not need to pay a deductible when filing a claim. Such policies typically cost significantly more than the standard policies.

These are some of the important facts you need to know about homeowners insurance deductibles. For complete protection of your home against disasters, ensure you have the right homeowners insurance in place. To get started on your tailored home insurance coverage, contact the professionals at today. We are here to assist you with all your coverage needs today!