Most home insurance policies have a deductible, meaning the homeowner pays a certain amount before the insurance company pays any part of the claim. So, if you have a $500 deductible, you’d pay $500 and the insurance company would pay the rest of the claim amount.
There are two ways deductibles are quoted on home insurance policies.
Percentage-based deductible means that your deductible is a set percent of the Coverage A or Dwelling Coverage in the policy. (This is NOT the market value of your home, but what is actually listed as the first line of coverage in your home insurance declaration page). In most cases, its’ between 1 and 5 percent of your home’s replacement value. So, if your policy has $200,000 of dwelling coverage for your home and you have a 2% deductible, then you would have to pay for the first $4,000 ($200,000 *2%) of damages to your home before the insurance company starts paying.
You pay a set dollar amount anytime you file a claim. The most common deductible is $1,000. However, it can be as little as $500 or as high as $10,000.
Let’s say you have a home insurance policy with the following coverage and deductibles:
Example 1 – An earthquake does $20,000 in damages
This would fall under the Earthquake Deductible, so you would pay the first $6,000 ($300,000*2%) for damages and the insurance company would cover $14,000 in damage. In this case you would probably want to file a claim.
Example 2 – A candle does $500 in damages
This would fall under the Regular Deductible, so you would pay the first $1,000 for damages, and then the insurance company would cover anything remaining. Due to the minor monetary damages incurred, it would not be worthwhile in this case to file the claim.
The most important factor to take into account when choosing your deductible is whether or not you’ll be able to cover the damages should anything happen to your home.
The benefit to a lower deductible comes at the cost of a higher premium. Over time, the extra money you pay towards your premium could be more expensive than the money you would pay out of pocket for a higher deductible.
A deductible primarily exists to stop people from filing excessive claims. So, while you may be tempted to file a claim when there’s damage to your house, you always should consider the situation and if it is in your best interest to file. A good rule of thumb is that you shouldn’t file a claim if it is less than two or three times the value of the specific deductible for that claim. Also keep in mind that if you file a claim for something that is not covered in the policy, and your carrier rejects the claim, the claim still goes on your claims record.
The examples and perspective in this article are the opinion of Claim Ally. Claim Ally Does Not practice law nor does it provide legal advice.
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