Your insurance deductible is the amount you will pay out of pocket toward a covered claim. When you meet your deductible, your insurance company will help cover the remaining costs, up to your coverage limit. You will choose your deductible when building your policy, but you only need to pay if you file a claim.
If you have a lower deductible, you’ll pay less out of pocket in the event you file a claim, but you’re likely to pay more in premiums. If you have a higher deductible, you’ll have to pay more if you file a claim, but your premium will be lower each month.
Insurance deductibles come in many forms, but the two most common are flat and percentage deductibles.
Flat Deductibles
A flat deductible is a fixed dollar amount that you will pay out of pocket for a covered loss. In most cases, your insurance provider will subtract the deductible from the amount claimed and that will be the portion you pay.
For example, if you have a $1,000 deductible and a hailstorm does $9,000 worth of damage to your home, your insurance provider will pay out $8,000 for the claim and you will cover the remaining $1,000.
Percentage Deductibles
For example, if your home is insured for $300,000 and your deductible is 2%, you would pay $6,000 of a covered claim ($300,000 x 2%).
If your policy offers a percentage deductible, that means your deductible would be a percentage of the total coverage amount on your policy. A percentage deductible is typically used for disaster-prone areas, as there is a higher chance of costly damages to the home.
When choosing a deductible that’s right for you, it’s important to consider what you can reasonably afford in the short term versus the long term. If you do choose a higher deductible, consider setting aside money specifically to cover your deductible in the event you need to file a claim. That way you’re financially prepared and not emptying the savings account you had planned to use for other emergencies!
