When you purchase a homeowners insurance policy, you’ll have to select a deductible. That will affect how much you’ll pay in premiums, how much you’ll have to pay if your home or property gets damaged, and when you’ll be able to file a claim.
How Homeowners Insurance Deductibles Work
A deductible is the amount that you’ll have to pay out of your own pocket before your homeowners insurance company will pay to cover a claim. For instance, if your house suffers damage that will cost $5,000 to repair, and you have a $1,000 deductible, the insurer will pay $4,000, and you’ll pay the remaining $1,000. For some covered perils, such as wind and hail, an insurance company might set a deductible as a percentage of the property’s insured value, rather than a specific dollar amount.
How Your Deductible Can Affect Your Premiums and Ability to File a Claim
Insurance companies set their rates based on several factors, including a policy’s deductible. Generally speaking, a policy with a higher deductible has lower monthly premiums, but specifics can vary from one insurer to another. With some companies, choosing a higher deductible might save you a bundle on your premiums, but with another insurer, selecting a higher deductible might not save you much.
The deductible that you choose will determine when you will and won’t be able to file a claim. Your insurance company won’t cover repairs that cost less than your deductible. If you choose a high deductible, your policy will only kick in if your house experiences major damage. You’ll have to cover relatively inexpensive claims yourself. You’ll pay lower premiums, but the cost of several small repairs can add up.
How to Figure Out Which Deductible Is Right for You
Think about how much you will be able to cover yourself if your property gets damaged and you need to file a claim. If you have a substantial emergency fund, selecting a higher deductible might make sense if you’ll get to enjoy lower premiums.
If, on the other hand, you have little or no savings, you might be better off choosing a policy with a lower deductible. If you have a high deductible and your house needs emergency repairs, the damage can get even worse while you struggle to come up with enough money to cover your portion of the bill.
Shop Around
When choosing a deductible for your homeowners insurance policy, weigh your potential savings on premiums against the amount you might have to pay out of pocket. Rates for homeowners insurance can vary significantly from one company to another. Choosing a higher deductible might save you a little or a lot, depending on the insurer.
Get quotes from several insurance companies and compare rates for policies with different deductibles. Figure out which insurer and deductible will help you keep both your premiums and out-of-pocket costs manageable.
