Apparently it’s not enough to avoid throwing stones. A famous quote, source unknown, says, “People who live in glass houses should take out insurance.”
Regardless of how fragile or tough your home or vehicle is, insurance is a good way to help fix or replace all of it or parts of it when the stones start to fly. Other than your coverage limits, perhaps the biggest determiner of how much you shell out each month for insurance is your deductible.
What, exactly, is a deductible? Is it different for home and auto insurance? How does the amount you pay for your deductible change? Understanding the ins and outs of deductibles can help you decide how much to pay and how that decision will affect you and your most valuable possessions. Here’s a straightforward breakdown of the basics of insurance deductibles.
What Is a Deductible for Homeowners Insurance?
A homeowners insurance deductible refers to the money you have to pay out of pocket before your insurance company gives you anything to cover a loss. In a way, a deductible represents your commitment to avoiding damage as best you can. If something happens to your home, the insurance company helps you out, but you have to come out of pocket a little, too. This can come as a surprise to some new homeowners. In many policies, there are two types of home insurance deductibles: standard and percentage.
What Is a Standard Deductible?
A standard deductible is a flat amount you pay when you file a claim. The size of a standard home insurance deductible varies, but they tend to be between $500 and $2,000.
Here’s how a standard deductible works: Let’s say there’s a storm that does a number on your porch. The damage is assessed at $8,000 and you have a deductible of $1,000. The insurance company will give you a check for the amount of the damage minus your deductible. As a result, you pay $1,000 out of pocket and the remaining $7,000 comes from the insurance company.
What Is a Percentage Deductible?
Percentage deductibles for home insurance are different from standard deductibles in two ways: First, they are specific to natural disaster-related events like storms. Second, they are based on a percentage of the insured value of your home.
For example, let’s say your home has an insured value of $400,000, and your policy has a 1% flood deductible. If a flood damages your home, before you get a dime from the insurance company, you have to come up with 1% of $400,000 or $4,000. If the flood caused $25,000 in damage, for instance, you would pay $4,000 and your insurance company would cut you a check for the remaining $21,000.
What Is a Deductible for Auto Insurance?
Auto insurance deductibles are similar to those for home insurance, but they’re a little simpler. When you sign on with your insurance broker, you agree to a deductible, and if you file a claim, that’s what you pay before you get any money from your insurer.
Here’s how auto insurance deductibles work: If the deductible on your policy is $500 and you get into a fender-bender that leaves you with $3,000 in damage, your insurance company will only give you $2,500. The first $500 comes from you.
What Affects How High or Low Your Deductible Is?
The amount of your deductible goes up or down according to how much you pay for insurance. You can ask your insurance company to charge you more in order to pay a lower deductible if something happens. On the other hand, you can save money each month by paying less for insurance but having a higher deductible.
With some home insurance companies, you can save as much as 30% on your monthly insurance premium payments by having a higher deductible. For example, you could decide to raise your deductible from $500 to $2,000, which means you’d be coughing up an extra $1,500 if something happened to your home. On the other hand, if your yearly premium is $3,000 and that shaves 30% off your premium, it may be worth it in the long run. You would save $900 every year, so if you go two years without an incident, the higher deductible has more than paid for itself.
Do You Pay a Deductible for the Liability Part of Your Policy?
Your insurance policy’s liability coverage helps pay for injuries or damage sustained by others in connection with your vehicle or property. Liability insurance also covers an injury to your pocket if someone sues you for something that happened in connection with your home that is covered under your policy. Fortunately, you don’t pay a deductible for liability insurance payouts.
For example, if there’s a windstorm and a branch of a tree on your property decides to visit your neighbor’s living room—through the picture window—your insurance company may pay for it with your liability coverage. However, you don’t pay a cent.
Do You Pay a Deductible for Insurance Endorsements?
An insurance endorsement is often added to a policy to give you extra coverage. For example, if your yard has a lot of trees, you may want to get water backup coverage. That way, if the roots decided to make their way into your sewage system and cause it to back up, all you have to deal with is the smell—insurance may cover the rest. You can add this kind of coverage to your policy with an endorsement, but you may have to pay a little extra in the form of a deductible.
Usually, deductibles associated with endorsements aren’t too high—a couple hundred bucks, at most. You should keep them in mind, however, if you’re thinking about adjusting your coverage.
How to Choose How Much Deductible to Pay
One of the easiest ways to choose how much you’re willing to pay for a deductible is to think about how much you could pay if an emergency popped up. If you think you can spend $1,000 toward a repair without your finances taking a big hit, you may want to set that as your deductible.
You can also choose your deductible based on how likely you are to make a claim over a certain period of time. For instance, if you sign up for a higher deductible and save 25% off your premium as a result, you may save considerable money over the course of a few years. At the same time, you run the risk of taking a bigger hit if you do have to file a claim.
How Homie Insurance Can Help
If you’re not sure how much of a deductible to pay, Homie Insurance can help. As an independent brokerage, Homie Insurance has no hidden agenda; the goal is to get you the best coverage—and deductible—for your needs. You can also get advice from your Homie Insurance coach about how to find your deductible sweet spot. With the right deductible, you can make sure your glass house is ready for life’s stones. Reach out to Homie Insurance today to learn more.