In the event of a covered loss, home insurance policyholders are required to pay for a portion of the damage themselves. This is commonly known as a house insurance deductible. The remaining damage will be covered by the insurance provider up to the policy maximum.
In addition, it’s important to know your deductible if you want to make sure your home is properly insured. Furthermore, this article describes home insurance deductibles and how to pick the best one for you.
What is a Home Insurance Deductible
A home insurance deductible is the amount of funds you must compensate out of pocket if you submit a claim under your insurance policy and it is granted. It is not the same as your insurance premium, which is the amount you must pay to keep your policy active. Generally, a higher deductible results in a lower premium. It is crucial to establish a deductible that is reasonable for your financial situation.
For instance, a snowfall caused $10,000 worth of damage to your roof, which will require expensive repairs. Your insurance company will approve the claim you submit. If your policy has a $1,000 deductible, the person fixing or rebuilding your house will need to receive payment from you for that amount, with the remaining $9,000 being covered by your insurance.
How Does a Home Insurance Deductible Work
The home insurance provider evaluates the loss after you file a claim and makes an offer to pay the claim, less the deductible. Assume that your home insurance coverage has a $1,000 deductible and if a powerful storm results in $30,000 worth of property damage. Your insurance company would then issue you a $29,000 claim payment at that moment.
If your deductible is a percentage, the circumstances are a little different. Assume the following: the home is insured for $300,000; you incur the same $30,000 in damages from the severe storm, and your deductible is 2%. Your insurance company would pay out a $24,000 claim check in this scenario.
Types of Home Insurance Deductible
Deductibles for home insurance come in two primary varieties. The policy will define these:
Dollar-amount deductible
In the event of a claim, a dollar amount deductible will specify the precise amount that you are required to pay out of pocket. The roofing example mentioned above was covered by a 1,000-dollar deductible.
Percentage-based deductible
A percentage-based deductible designates a particular portion of the insured value of your home as the deductible. In the event of a claim, your deductible will be 2 percent of $150,000, or $3,000. This is the case if your policy specifies a 2 percent deductible and your dwelling coverage is $150,000.
Remember that the same coverage may have multiple deductibles. For instance, you may have a dollar-amount deductible on all claims, excluding named storms or hurricanes. You may have a different percentage-based deductible for specific claims. Understanding the different types of home insurance deductibles requires a careful analysis of your policy. If you have any questions, ask your insurance agent for clarification.
When Do You Pay Your Deductible
Unless you file a claim, you won’t be required to pay a deductible, but not all claims will. Generally, only the following claims will require a deductible from you:
- Structural issues with your house or any detached properties, such as a garage or shed
- Damage or loss of personal property
There is no deductible to pay when you file a claim for responsibility, loss of use, or medical payments. Deductibles range between $500 and $2,000. Before submitting a claim, we recommend assessing the cost of repairing the covered structure or object. If the cost of repairs is less than your deductible, you don’t have to file a claim.
Is Home Insurance Tax Deductible
The Internal Revenue Service (IRS) states that you typically cannot deduct the cost of homeowners insurance on your principal residence from your income taxes. Premiums paid on an investment rental property you own, on the other hand, may be tax deductible. In addition, if you work from home and are self-employed, you may be eligible for a tax deduction.
Real estate taxes (local and/or state), qualified home mortgage interest, and private mortgage insurance (PMI) are all deductible. Moreover, speak with a tax expert to learn about any home-related deductions you may be entitled to.
How Do I Choose a Home Insurance Deductible
You should set your deductible based on how much you can fairly afford to pay out of pocket in the event of a claim. If you’re on a tight budget, consider having a lower deductible for your home insurance to avoid paying a significant sum upfront.
If you prioritize lowering your home insurance rate, selecting a higher deductible may make sense. Once again, ensure that you can afford the deductible in the event of an unexpected claim. In any case, receiving numerous quotes with different deductibles is a great way to compare pricing. After you’ve settled in, you can select a home insurance deductible that works for you.