Every homeowners insurance policy has some kind of deductible that the homeowner is responsible for when making a claim.
Deductibles are an additional expense on top of the cost of the premium.
To get the most value for your policy and keep your payments comfortably manageable, homeowners insurance agents recommend that you understand your policy deductibles and how they affect claim payments.
What Is A Homeowners Insurance Deductible?
A homeowners insurance deductible is simply how much of a damage claim you must pay in addition to what your policy will cover for a loss.
Deductibles are usually only a fraction of the total claim cost.
When an insurance claim is made, the deductible is usually subtracted from the total claim amount to be paid by the policy.
There are three types of deductibles you might come across when purchasing a policy from homeowners insurance agents:
- Clause 1 Deductible - Applies to claims made for home damage sustained in windstorms.
- Clause 2 Deductible - Applies to claims made for all other types of damage to the home.
- Named Clause Deductible - Applies to claims made for home damage sustained during a specific, named weather event.
How Are Deductibles Determined?
Homeowners insurance deductibles vary based on a number of things including where you live, the type and value of the property, loss risk, and more.
Locations experiencing higher claim rates due to natural disasters, high crime rates, and other events sometimes have higher deductibles and/or policy premiums while those in lower risk locations often have lower ones.
Generally speaking, homeowners insurance agents calculate home policy deductibles in one of two ways:
- Fixed Dollar - An assigned dollar amount such as $500 or $5000 that the policyholder must pay when a claim is made.
- Percentage - Determined by calculating a certain percent of the value of the home. For example, a 1% deductible on a $200,000 home would be $2,000.
How Deductibles Make Insurance Premiums Manageable
Although many homeowners seek out the lowest deductible they can get when purchasing homeowners insurance, you should consider the benefits of a higher one as well.
The lower the policy deductible, the higher your yearly insurance premium will be.
Conversely, the higher the deductible, the lower your yearly premium will be.
Depending on your financial circumstances and actual risk level, opting for a higher deductible would decrease the annual insurance premium you will need to pay.
What About Making A Claim - Will That Raise My Rates?
You also want to keep deductible amounts in mind when deciding whether or not to submit a claim.
In Texas, insurers cannot increase the rate of your insurance based on the filing of a single claim; however, they can look at the amount of claims filed at policy renewal time.
If you want to move to another insurer, the new company can look at your prior claim history to decide if they want to insure you and what rate they will charge.
Making a claim depends a lot on the amount of damage sustained and if repairs will be extensive or minor.
A repair bill that is at or slightly over your deductible may be better not to file since most of that bill is your responsibility.
On the other hand, extensive damage needs to be handled by your insurance carrier and you will just need to pay your deductible amount.
Regardless of whether you choose a higher or lower deductible, plan on paying the deductible amount on your homeowners insurance policy anytime you submit a damage claim.
To learn more about deductibles including how yours is calculated and any policy specifics, talk to your local homeowners insurance agents for help!