What is a homeowners insurance deductible?

When building your ideal homeowners insurance coverage, you’ll have a few important choices to make: what type of homeowners policy to buy, how much homeowners insurance you need, and the deductible you want for that coverage. Each of these factors can affect your policy premium, but one of the easier elements to adjust is your deductible.

A homeowners insurance deductible is the portion of a covered loss you’re willing to pay before your insurance starts to pay. When filing an insurance claim for a covered loss, you’ll be responsible for covering the first portion of damages up to your total deductible, and then your insurance policy will cover up to your coverage limit. A higher deductible presents a lower risk to your insurance company, so you may unlock lower premiums as a result — but it’s important to ensure that you can afford to actually cover that portion if and when a loss occurs.

Read on to learn more about how homeowners deductibles work, the typical homeowners insurance deductible, and how to choose the right amount for your family.

Key takeaways

• Your deductible is the portion of a covered loss you’re responsible for paying out of pocket before your homeowners insurance coverage kicks in.

• You may have multiple deductibles within the same policy, such as an “all other perils” deductible for standard losses and even lower deductibles for losses included in coverage riders.

• Home insurance deductibles may be a flat dollar amount of your choosing — at times ranging from $500 to $5,000 or more — or a percentage of your home’s insured value, such as 1% or 2%.

• The lower your deductible, the more risk you pose to an insurance carrier; the higher the deductible, the less risk your carrier takes on.

• Choosing a higher deductible often results in a lower insurance premium, while lower premiums may raise your rates.

How does a home insurance deductible work?

Home insurance deductibles ensure that you, the policyholder, have a little bit of “skin in the game” when it comes to protecting your property. Rather than your insurance carrier assuming all of the risk for any losses that could occur, a deductible helps keep your premium costs lower by both preventing too-small claims and forcing homeowners to cover a small portion of the loss upfront.

If your property experiences a covered loss that warrants a claim, your homeowners insurance policy coverage will kick in to help repair, replace, or even rebuild to make you whole. You’re responsible for covering some of that loss up to your deductible. After that, your carrier will cover up to your policy’s applicable coverage limit.

The typical home insurance deductible is set as a percentage of your home’s insured value, but you can usually adjust this up or down to fit both your budget and your available savings. The deductible you’re able to choose may also vary by the type of policy you hold — an HO-3 insurance policy may have different deductible ranges than an HO-4 policy, for example. There are also by-peril deductibles. For example, your policy may have a different deductible for wind and hail in addition to your all other peril deductible.

You choose the deductible amount and they vary by carrier.

Deductible types for homeowners insurance

As mentioned, there are two different methods of calculating policy deductibles for home insurance coverage: standard dollar amount and percentage-based.

• Percentage deductibles are the most common and are based on your property’s insured value, often at a rate of 1% to 10%. So, if your home is insured for $450,000, your deductible would be $4,500 at 1% or $9,000 at 2%.

• Standard dollar amount deductibles are also an option through many carriers and give you a flat deductible that doesn’t depend on your home’s value. These commonly range from $500 to $5,000, though this may depend on your location, carrier, policy type, home value, and more.

There may also be different types of deductibles for homeowners insurance coverage even within the same policy, especially if you have endorsements.

Homeowners insurance deductibles and endorsements

In many homeowners insurance policies, there are multiple deductibles. These can vary based on the type of loss and whether that coverage falls under the all other peril deductible, by-peril deductible, or an insurance endorsement.

For example, you could have a property insurance deductible of 1% that applies to standard peril losses, such as a fire that damages your home. You could also have a flat deductible of $500 that only applies to special areas of your home or specific losses, such as roof damage due to hail or even lost laptop replacement under a policy rider.

The details of the loss would determine which deductible you pay and how much your carrier then covers.

What are endorsements?

Endorsements are also known as riders, floaters, or even options. These add-ons allow you to expand your homeowners insurance policy, providing you with either amplified coverage or coverage for specific perils and items that wouldn’t otherwise be included.

Endorsements might provide increased coverage for valuable items such as jewelry or electronics. They could also protect against added perils, like water backup coverage or mold coverage (which are often excluded from standard policies).

Disaster deductibles

Depending on the type of policy, perils generally included in your homeowners policy are fire, lightning, hail damage, falling objects, and the like. Most homeowners policies cover these perils with a standard (“all other peril”) deductible but don’t typically include natural disasters like floods or earthquakes.

For that coverage, you’ll usually need to purchase separate coverage at an additional expense. These separate disaster policies will have their own deductibles if a covered event occurs.

Some of the most common examples include:

• Earthquake deductibles — If an earthquake damages your home or other covered buildings, your deductible may range from 2% to 20% of your home’s replacement cost value. The actual percentage will depend on your location and is usually higher if you live in a high-risk state.

• Flood deductibles — As with standard homeowners policies, flood insurance deductibles can either be a flat dollar amount or set as a percentage of your home’s value, depending on location and even your specific insurance carrier.

• Hurricane deductibles — You may be forced to pay a hurricane deductible if a storm damages your home after a specific National Weather Service “trigger” occurs. These triggers can include naming the storm, declaring a hurricane watch/warning, or even identifying the storm by its wind speed or intensity. Hurricane deductibles can vary by location, and while they are often available as a percentage or dollar amount, high-risk homes are usually forced into percentage deductibles.

Wind and hail deductibles — If you live in a high-wind area or one prone to hail, you may have a separate deductible related to these perils. These are often percentage-based and tend to range from 1% to 5% of your home’s insured value. Some insurers may also implement a wind and hail deductible for roof damages only, regardless of where you’re located.

What is the average deductible amount for home insurance?

Since many policies have a percentage-based calculation, the average home insurance deductible is truly dependent on each home’s insured value. Standard peril deductibles are often offered at 1% or 2% for those who prefer a percentage-based calculation or anywhere from $500 to $5,000 (or more) for those who want a flat dollar amount.

Disaster deductibles can also be percentage-based or a flat dollar amount. Depending on the peril, the carrier, and your location, percentage deductibles can range from 1% to as high as 20%.

What deductible limit is right for me?

So, how do you decide what deductible for home insurance coverage is ideal for you and your home? It’s important to consider a few different factors.

• Your budget. The higher your deductible, the more you may be able to save on your homeowners insurance premiums. If you’re willing to accept a larger deductible for your policy, this can be a great way to lower monthly costs to fit your budget.

• Your savings. It’s important to note that while a higher deductible can be a great way to save on premiums, it does mean that you’ll be responsible for a larger portion of any claims that are filed. Be sure you don’t choose a deductible you aren’t prepared to cover out-of-pocket following a loss and consider how much money you have tucked away in savings to cover this kind of unexpected cost.

• What your carrier allows. Ultimately, you’ll only be able to choose from the deductible options that your insurance provider allows. These may be based on your location and policy type and can vary from as low as $100 in some cases to multiple thousands of dollars.

Still have questions?

Want to know even more about homeowners deductibles? Here are some frequently asked questions to keep in mind.

What is a typical homeowners insurance deductible?

For homeowners who choose a percentage deductible for their dwelling coverage, 1% or 2% of their home’s insured value is common. For homeowners who opt for a flat dollar amount instead, a deductible between $500 and $1,500 is pretty typical.

When do you pay the deductible for homeowners insurance?

If you file a claim under your homeowners insurance coverage, for a covered loss, you’ll be responsible for paying your deductible at the time your claim is paid out. Your carrier may ask you to make this payment before insurance payouts even begin, or they may simply deduct this amount from their covered portion of the claim.

What if I can’t afford a home insurance deductible?

If you’re unable to pay your deductible after filing a claim, you may need to work with your carrier to figure out an alternative. This might mean that funds are paid directly to contractors for repairs, but you are responsible for covering your portion (equal to your deductible) with a credit card or through financing.

How do homeowners insurance deductibles affect insurance premiums?

In general, the higher the insurance deductible you choose, the lower your premiums will be. If you opt for a lower deductible instead, your carrier is accepting more of the risk and will usually raise your premiums accordingly.

Is a $2,500 deductible good for home insurance?

Whether or not a $2,500 homeowners insurance deductible is good really depends on you, the policyholder, and your individual insurance needs. If you can afford to cover such an expense upfront in the case of a loss, and that level of deductible provides you with the right premiums for your coverage, then you can consider it good.

Is homeowners insurance tax deductible?

Home insurance premiums can be tax deductible, but only on a rental property. Your premiums are never a tax-deductible expense when it’s coverage for your primary home.