When buying home insurance, it is imperative to understand exactly how the deductible applies to the policy, and to which section and coverage on the policy it will apply. Without understanding this, a consumer will have a tough time making an informed decision about buying home insurance.
What is a deductible?
A deductible is the portion of a covered loss you must pay before your insurance company pays for any of the loss. Typically, your insurance company will simply subtract the deductible from the total amount of your claim, rather than requiring you to pay the deductible up front.
- Example: A hailstorm hits your neighborhood causing damage to your roof which will need to be replaced. You have a $1,000 deductible. The total cost of replacement is $6,000.
Therefore…
$6,000.00 – Total loss amount
1,000.00 – Your deductible that is deducted/your responsibility
$5,000.00 – Check issued by your insurance company
In other words…
You receive a $6,000.00 invoice from your contractor for work on your roof after a hail storm
Your insurance company issued/sent you a check for $5,000.00
Your responsibility as the homeowner, would be the remainder of $1,000.oo, which is your deductible
Understanding my insurance policy
As shown above, the deductible is a dollar amount—or a percentage in some cases—which is deducted from a payout following the adjustment of an insurance claim. Deductibles are a vital part of insurance contracts; The deductible is the opportunity for a homeowner to share risk with the insurance company and therefore present less risk to the insurance carrier.
There is sometimes a misunderstanding regarding percentage-based deductibles; some people believe that a percentage is a variable amount. In reality, the percentage is a fixed amount that is calculated as a percentage of the coverage limit.
In some states, policies may have a dollar-based deductible (i.e. $2,500 or $5,000). However, the policy may have a separate deductible for certain losses. Common examples of these include wind and hail. In the case of a hurricane, tornado or even strong winds, the Wind and Hail deductible would apply; if the home is insured for $500,000 and the deductible is listed as 1%, the amount deducted from a covered loss would be $5,000.
Understanding your responsibility as a policy holder before you have a major loss can make a big difference in the amount of stress and confusion you experience while navigating your claim. If you are unsure about the specifics of your policy or how your deductible works, call your insurance agent today. Don’t get left hanging in the wind if something happens to your property.
