What is a deductible?
An insurance deductible is the amount of money you will have to pay out of pocket if you make a claim. You will be responsible to pay it before your insurance company starts processing your claim for the roof replacement. Some people can confuse it with an insurance premium, which is your payment to an insurance company for your coverage.
Types of homeowners insurance deductibles
There are two main types of homeowner’s insurance deductible. It is usually stated in the policy.
Dollar-amount deductible: A dollar-amount deductible is a specific dollar amount that you will be responsible for paying in case of covered damage. You can vary this type of deductible: it can be $500, $1,000 or whatever amount you can afford. But remember: the higher the deductible, the lower the premium.
Percentage-based deductible: A percentage-based deductible will be defined by your insurance policy as a specific percentage of your home’s insured value to be deducted. Let’s say your policy has a 2 percent deductible and your home’s insured value is $150,000. If you file a claim, your deductible will be 2 percent of $150,000 or $3,000.
How do homeowner’s insurance deductibles work?
It is easier to be explained with an example. Let’s say your roof gets damaged and a claim for $15,000 will be filed. If your deductible is $1,000, you will be responsible to pay $1,000 and then your insurer will pay $14,000. If you have a percentage-based deductible of, let’s say, 1,5% of your home’s insured value (for instance, it’s $150,000), you will have to pay 1,5% of $150,000, which is $2,250. Your insurance company will cover the remaining $12,750.
How your deductible impacts your homeowner’s insurance premium
The rule here is fairly easy. To get a lower deductible, you must pay a higher premium and vice versa. This depends on whether you or the insurance company takes a greater financial risk. If your area isn’t at risk of storm damage, you might be more comfortable with paying a lower premium and having a bigger deductible, in hopes that you will not need to file a claim. Others might be willing to pay a higher premium to have a lower deductible.