Homeowners Insurance 101
Before you get a homeowners insurance quote, understand the basics of home insurance. What is home insurance? Find out that information and more.
Deductibles are an important part of your insurance policies. When you have an insurance claim, your deductible is the amount of money you would pay for repairs to your home or car before your insurance would start paying.
When you buy an insurance policy, you’ll select a deductible amount that you are financially comfortable with. Your insurance company will use this amount to set your premium. Your premium is essentially your monthly payment; it's the amount paid to your insurance provider to keep coverage active for a given time. It's usually paid monthly, but can also be paid annually.
Then, if something happens that’s covered by your policy, you’ll file an insurance claim. Once your claim is approved, your insurance company will take your deductible amount out of the total payout of your claim. You can always talk to an agent if you have questions about your insurance policy's deductible.
Consider what would happen if you set a $500 deductible on your car insurance and you cause an accident that results in $5,000 in damage to your car. You would be responsible for paying your deductible, that first $500. Then the insurance company would cover the remaining $4,500.
Not all car insurance policies have a deductible. Liability coverage, for example, typically doesn't, but comprehensive coverage and collision coverage typically do. The difference between car insurance coverage that does and doesn't have a deductible is the amount of repairs. Because comprehensive and collision coverage deal with damage caused by a collision—whether another driver is involved or not—the damage is usually extensive, which can trigger a deductible.
Let's say you have a house fire that causes $25,000 in damage to your home, including damage caused by the fire, smoke, and water from the efforts to put it out. If you have a $1,000 deductible on your home insurance, you’d pay that deductible with the home insurer covering $24,000, assuming the claim was within policy limits.
What you choose for your insurance deductible will impact the premium you pay for your insurance policy. In general, if you choose a higher deductible, you will have a lower premium, while a lower deductible will result in a higher premium.
Having a higher deductible will shift more of the financial responsibility for a claim from the insurance company to you, reducing the insurer's risk and lowering their cost. If you have a high deductible and have a minor car accident or minimal damage to your home from a storm, you may not even have enough damage to file an insurance claim. Because you’ll be covering more of the cost of a claim, your regular insurance premium would be lower.
Most standard insurance policies use dollar-amount deductibles. You’ll select a specific dollar amount that you’re comfortable paying out of pocket if you have a claim. There are several things to consider when selecting your deductible, but here are two important ones:
Selecting a higher deductible could reduce your regular insurance payments. Opting for a policy with lower coverage and a higher deductible may provide some savings in the beginning, but it could mean paying more money out of pocket when you file a claim. If you file a claim for something that isn't covered or has a high deductible, you may have to cover more out of pocket than expected.
While a higher deductible will typically result in a lower premium, you’ll be responsible for paying more out of pocket if you have a claim. You need to make sure you’re prepared to cover that cost if you have a claim.
Not all deductibles are the same. For example, earthquake coverage has a percentage deductible. And that deductible applies separately to each coverage impacted. (Note: Earthquake coverage is optional and not automatically included in your home insurance policy.)
Here’s how earthquake deductibles apply when there's damage caused by an earthquake to the structure of your home and your personal property.
If your earthquake deductible is 5% and an earthquake damages your house, your deductible would be 5% of the dwelling insurance coverage you have. If your coverage was $200,000 on your home, your deductible* for your home structure (dwelling) would be $10,000. ($200,000 x .05)
If the earthquake also damages your personal property in your home, you’d be covered, but you’d have to pay the deductible on that coverage as well. If you have $100,000 in personal property coverage, you’d owe a $5,000 deductible* on that part of the claim. ($100,000 x .05)
Even though it’s one earthquake (one occurrence), as the policyholder you would pay both deductibles, which could result in a large expense on an earthquake claim. Still, that deductible would be significantly less than paying the entire cost to repair or rebuild your home following an earthquake.
Insurance deductibles play an important part in how insurance works and how companies can keep insurance affordable. Insurance policies include them to:
If insurance policies didn’t have a deductible, policyholders would receive the full amount of the claim from the insurance company. They wouldn’t have a financial stake to deter fraudulent claims which would likely lead to more fraud in auto and home insurance claims. When fraud increases, the cost of insurance increases.
Insurance is an important part of your financial plan, providing protection for your property, belongings and even yourself. By understanding how insurance deductibles work, you’ll be better prepared to make important decisions about your coverage.
Talk with your your local insurance agent to choose the right deductible for your home and auto insurance needs.
Updated 8-1-24
Before you get a homeowners insurance quote, understand the basics of home insurance. What is home insurance? Find out that information and more.
Car insurance protects you if you have an accident or your car is damaged or stolen. Auto insurance coverage does not pay for mechanical repairs or maintenance.
Save money on car insurance by following the speed limit, keeping your credit score up, choosing your car carefully and making sure you get all the auto insurance discounts you qualify for.
Connect with your insurance agent or call us at 866-COUNTRY (866-268-6879). Find out more about insurance.
* Examples are for illustrative purposes only. Deductibles and coverage are subject to your policy details.
Auto and home insurance policies issued by COUNTRY Mutual Insurance Company®, COUNTRY Preferred Insurance Company® and COUNTRY Casualty Insurance Company®, Bloomington, IL.
COUNTRY Financial® is a family of affiliated companies (collectively, COUNTRY) located in Bloomington, IL. Learn more about who we are.