Home Insurance 101: What Deductibles Are And How They Work

When purchasing home insurance, one of the most important terms you’ll come across is deductible. Deductibles play a major role in how your policy works, what you’ll pay out-of-pocket, and how much your premiums cost. Yet, many homeowners don’t fully understand how they work until it’s time to file a claim.
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This guide breaks down the basics of home insurance deductibles so you can make smarter decisions about your coverage.

What Is a Deductible?
A deductible is the amount of money you must pay out-of-pocket before your home insurance kicks in to cover the rest of a claim.

• Example: If your deductible is $1,000 and your claim for storm damage totals $8,000, you pay $1,000 and your insurer pays $7,000.

Deductibles help share the financial responsibility between you and your insurance company.


Types of Home Insurance Deductibles
1. Fixed-Dollar Deductibles

• A set dollar amount you must pay (e.g., $500, $1,000, or $2,500).
• Common for most homeowners insurance policies.

2. Percentage-Based Deductibles

• Calculated as a percentage of your home’s insured value (often 1–5%).
• Example: If your home is insured for $300,000 and your deductible is 2%, you pay $6,000 before insurance covers the rest.
• Often applied to specific risks like hurricanes, windstorms, or earthquakes.

How Deductibles Affect Premiums

• Higher Deductibles = Lower Premiums
  Choosing a higher deductible reduces your monthly or annual insurance cost because you’re agreeing to pay more out-of-pocket in the event of a claim.
  
  
• Lower Deductibles = Higher Premiums
  If you prefer smaller out-of-pocket costs after a disaster, your premium will likely be higher.

Tip: Select a deductible that balances affordability with financial protection—enough savings to cover it without straining your budget.


When Deductibles Apply (and When They Don’t)
Deductibles Apply To:

• Property damage claims (fire, wind, theft, etc.).
• Certain weather-related disasters depending on your policy.

Deductibles Do Not Apply To:

• Liability claims (like someone being injured on your property).
• Additional living expenses (if your home is uninhabitable after a covered loss).

Common Mistakes Homeowners Make

1. Choosing a Deductible That’s Too High
   While it lowers premiums, you may struggle to pay it after a major loss.
   
   
2. Not Understanding Percentage Deductibles
   These can be surprisingly expensive in large claims—always calculate your potential out-of-pocket costs.
   
   
3. Forgetting to Reevaluate Over Time
   As your home’s value increases, percentage-based deductibles increase too.

Conclusion
Deductibles are a key part of how home insurance works. They determine your financial responsibility after a loss and directly impact your premiums. By understanding the difference between fixed-dollar and percentage-based deductibles, and by choosing a deductible that matches your financial comfort level, you’ll be better prepared when disaster strikes.

The bottom line: Don’t just focus on premiums when choosing home insurance—your deductible plays a major role in your protection and peace of mind.

At UG Insurance Brokerage Inc., we do our best in making sure that our clients are well-protected with affordable and comprehensive policies. We make sure to go the extra mile to help you with your needs. To learn more about how we can help you, please contact our agency at (718) 848-7777 or CLICK HERE ​to request a free quote.

Disclaimer: The information presented in this blog is intended for informational purposes only and should not be considered as professional advice. It is crucial to consult with a qualified insurance agent or professional for personalized advice tailored to your specific circumstances. They can provide expert guidance and help you make informed decisions regarding your insurance needs.