Before securing homeowners insurance, you need to have a good understanding of how the deductible you choose will affect your premium and your out-of-pocket expenses. Insurance companies typically use one of two different deductible calculations.
Insurance Deductibles as Percentages:
This type of deductible is the least common. Not all insurance companies calculate deductibles in this way, but the trend has become increasingly popular in Florida due to the extensive damage caused by hurricanes or windstorms. These increased deductibles are meant to limit the insurance companies’ exposure in these high-risk areas.
With deductible percentages, the deductible is usually set as 1 to 5% of the insured value of the home. If, for example, your home is insured for $400,000 and you have a 2 percent deductible, you’d have to pay out $8000 before the insurance company begins paying out. As this example illustrates, this amount is more costly than the traditional deductible. Typically, insurance companies use this calculation when providing coverage for windstorms or hurricanes, and this deductible is separate from the deductible for basic coverage.
Traditional Homeowner’s Insurance Deductibles:
Traditionally, homeowner’s deductibles are a flat amount and will vary from company to company. If, for example, you choose a $500 deductible and you incur $2500 worth of damage to your home in a covered event, you would only pay the first $500. The insurance company would pay the remaining $2000. Having a deductible as low as $500 dollars, however, will likely result in a costly premium. By raising your deductible to as much as you can afford, you can greatly reduce your homeowner’s premium and you’ll have more money to spend on your day-to-day expenses.
Generally, the higher deductible you have on your policy, the lower your homeowner’s insurance premium will be. The more risk you are willing to absorb, the less your insurance will cost you. Some deductibles, such as a hurricane coverage deductible in Florida, may be set at a percentage of your home value. You should talk to an agent about your deductible and premium options.