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What Is a Homeowners Insurance Deductible?

What Is a Homeowners Insurance Deductible?

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Your homeowners insurance deductible is the amount of money you agree to pay before you can make a claim with your provider. Because it affects the cost of your homeowners insurance and the coverage you're able to use, choosing the right deductible is integral to getting a homeowners insurance policy with the most value.

Below, we explain how your homeowners insurance deductible can factor into the affordability of your policy. We analyzed thousands of quotes to show how adjusting your homeowners insurance deductible can be a necessary part of comparing quotes and finding the best coverage for you.

Understanding homeowners insurance deductibles

You must pay a homeowners insurance deductible before you can make claims on any damaged or stolen property that's covered by your policy.

While every home insurance policy comes with a deductible, you do have some power in choosing the deductible amount. Homeowners insurance companies present their deductibles differently. For instance, you might be able to choose from deductibles of $500, $1,000 or $2,500. Your premium will be lower if you choose a higher deductible, and vice versa.

Alternatively, some companies set the deductible as a percentage of your policy's coverage levels. For example, let's say your home is insured up to $300,000 and your deductible is equal to 1% of the coverage limit. Instead of paying a set dollar amount when filing a claim, you would pay $3,000.

Percentage-based deductibles are commonly offered for specific types of covered perils. For example, In states or regions where homeowners are more likely to encounter wind damage or hail, insurers often assign these perils a separate percentage-based deductible instead of a flat amount.

When should you choose a percentage-based deductible?

There are a couple scenarios where opting for a percentage-based deductible could have its advantages. If you own an expensive home and can safely pay for minor repairs out of pocket, a percentage-based deductible could help you save on your premiums.

If you owned a home insured for $1 million and decided to take on a 1% deductible of $10,000, you'd take on a greater share of your policy's risk than if you had settled on a $2,500 flat-rate deductible. As a result, your premium would decrease.

A homeowner who wants to increase their deductible incrementally could also benefit from picking a percentage-based deductible. Let's say you owned a $150,000 home and had a $1,000 deductible. You want to increase your deductible and lower your premiums, but you don't want to commit to a deductible of $2,500 — commonly the next increment offered by many companies.

With a 1% deductible, the amount you'd have to pay would increase from $1,000 to $1,500 instead of $2,500, a much more manageable increase for the average homeowner.

Who pays the deductible? The homeowner is responsible for paying the deductible. However, you won't actually send a check to the insurance company. After you file the claim, the insurer subtracts the deductible from the settlement. For example, if you file a $10,000 claim and you're responsible for a $500 deductible, then the settlement would come out to $9,500.

Flood insurance deductibles

Just like regular homeowners insurance, your flood insurance provider requires you to pay a deductible on claims. If you purchase flood insurance from the National Flood Insurance Program (NFIP), you can receive premium discounts based on the size of your flood insurance deductible.

If you have coverage with a private flood insurance company, then you're often given the choice between a $2,000 or $5,000 deductible. As with regular homeowners insurance deductibles, the amount you choose affects your premium.

What is the standard deductible for homeowners insurance?

There's no standard deductible for homeowners insurance. However, most companies offer deductibles of $1,000 and up. Many companies offer smaller homeowners insurance deductibles of $500 and even $250. Companies rarely offer no-deductible policies, but when they do, policies come with higher premiums.

It's generally a good idea to select a deductible of at least $1,000. While this means that you'd have to pay $1,000 to file a claim, having a higher homeowners insurance deductible reduces your premiums — often by a significant amount.

When choosing your homeowners insurance deductible, find a balance that makes sense for your budget and for the amount of property you can safely pay to replace out of pocket.

However, you shouldn't raise your deductible as far as it will go. When choosing a homeowners insurance deductible, keep in mind that the amount you select precludes you from making any claims below that amount.

For example, if you have a $10,000 deductible, you might have a very cheap premium, but you'll only be able to make a claim on damage in excess of $10,000. In this case, if your $1,500 laptop were stolen, your high deductible would dwarf the loss, leaving you to pay for the laptop out of pocket. In this situation, a $1,000 deductible would at least allow you to recover $500 of the laptop's value.

On the other hand, since making claims raises your premiums, you could opt for a higher deductible (and a more affordable premium) as long as you're OK not making claims on smaller losses. If you had a $10,000 deductible and you could replace the $1,500 laptop without help from your insurer, then cheaper coverage could be worth forgoing the ability to make claims on less-expensive items.

How does your homeowners insurance deductible amount influence your premium?

We collected thousands of quotes from the nation's largest providers to show how adjusting your homeowners insurance deductible can affect the rates you pay for coverage. We found that the average price of homeowners insurance can change by nearly $500 per year depending on the deductible you select.

Raising your deductible from $500 to $1,000 could decrease your homeowners insurance premium by 13%.

A bar graph showing the average costs of homeowners insurance with different deductibles
A bar graph showing the average costs of homeowners insurance with different deductibles

We also discovered that no matter your insurance provider, increasing your homeowners insurance deductible from $500 to $5,000 can decrease your premium by about one-third. However, as you can see from the following table, it's a good idea to compare homeowners insurance quotes given the variance in premiums for the same amount of coverage.

Insurance provider
$500 deductible
$1,000 deductible
$2,500 deductible
$5,000 deductible
State Farm--$1,031$900$830
American Family--$1,274$1,236$1,194
Liberty Mutual$3,287$2,663$2,205$1,851

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We generated quotes for a typical property: a home built in 1968 insured for $250,000. We collected quotes with four different deductibles: $500, $1,000, $2,500 and $5,000. Then, we averaged the rates we got for each company and for each deductible.

ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only — your own quotes may be different.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.