Understanding Your Insurance Deductible

Are you confused by the term deductible? A deductible on a homeowners, condo, or renters policy is important as it helps policyholders cover losses affordably. Here’s how it works. 

How an insurance policy deductible works for you

The deductible on an insurance policy is the sum of money a policyholder must pay before your insurance company covers a loss from a claim. Whether you reside in a home or condo you own or a rental property, your insurance policy has a deductible. 

A policy’s deductible amount is based on protections set by the insurance carrier and may be as low as $250 or as high as $10,000. The higher the deductible, the lower the insurance premium rate. This is because the policyholder agrees to be responsible for a larger portion of a covered loss. 

Insurance carriers typically charge deductibles as either a flat or fixed amount. They may also charge by a percentage of the home’s replacement value under the Coverage A limit listed on a policy’s declaration page.

Any deductible amount lower than $1,000 translates into a higher premium rate on a policy.

How an insurance policy deductible is paid

The deductible listed in a homeowners, condo, or renters insurance policy is the policyholder’s responsibility when there’s a covered loss. The deductible appears as a deduction subtracted from the total amount the insurance company agreed to pay to cover the loss.

For example, you may submit a claim for hail damage to your roof, and the covered loss on that claim totals $8,000. If your policy lists a $1,000 deductible, the insurance company pays out $7,000 while you must pay the $1,000 difference.

Covered repairs for roof                     = $8,000

Less deductible                                      = -$1,000

Total payout for repairs                    = $7,000

by the insurance company

Deductible payments are paid upfront before the insurance carrier pays the balance of the claim. If claim damages are less than the deductible, the insurance carrier isn’t required to pay out for the loss – as the deductible amount covers the bill.

How separate deductibles for specific policy coverages work

Some insurance policies offer an optional wind/hail deductible that applies only to wind/hail claims. The deductible amount is generally higher than the standard homeowners policy but offers some savings on premium rates. As mentioned previously, the higher deductible means the policyholder is responsible for a larger portion of the covered loss. 

An endorsement or rider, which is an amendment to an existing insurance contract, may be added to a policy as additional protection against specific kinds of losses. These may have separate deductible options equal to or higher than the listed deducible on the original policy. 

For example, if you have a finished basement and want protection against damage from sump pump failure or water backup loss, the policy may include a separate deductible for this specific coverage endorsement. It could be equal to or higher than the homeowner policy deductible. As mentioned before, the higher the deductible, the lower the insurance premium rate. The claim coverage paid by the insurance company includes the total for the loss, less the amount of the deductible paid by the policyholder. 

The deductible options you choose are listed on the policy declarations page and are included within the insurance contract. A deductible is charged for every claim submitted. Should a policyholder file multiple claims during a policy term, they must pay the policy deductible amount owed for each separate claim.

For questions regarding deductibles, please give our office a call.