Understanding Your Homeowners Deductibles

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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.

Types of Deductibles

 

Your policy may have different deductibles based on the reason for your claim. A typical Texas homeowners policy will have two deductibles:

 

  • Clause 1 deductible - applies to claims involving covered windstorm damage; and
  • Clause 2 deductible - applies to claims involving all other types of covered damage.

 

Some insurance policies may also include a “named storm” or “tropical cyclone” deductible. This deductible applies when a hurricane or named storm damages your home. Your regular Clause 1 deductible will apply in the event that damage occurs from a thunderstorm or tornado unrelated to a hurricane or named storm. Named storm deductibles are usually much higher than other policy deductibles. This means you are responsible for a larger portion of any loss involving damage from a hurricane or named storm.

 

Not all policies contain named storm deductibles. It is important to understand what deductibles apply to your policy. Ask your agent or other company representative if you are unsure if your policy contains a named storm deductible. 

Calculating the Deductible

 

Insurance companies can calculate deductibles as either a fixed dollar amount or a percentage of your home’s insured value. A dollar deductible provides an easy way to anticipate the amount you are responsible for in the event of a covered loss. For example, if you have a $500 deductible, you are responsible for $500 of the loss and the company pays for the rest of your loss, up to the policy limits. Percentage deductibles are calculated as a percentage of your home’s insured value and not a percentage of the claim amount. For example, if your home is insured for $100,000 with a 1% deductible, you would be responsible for $1,000 of any loss. A 2% deductible on that same policy means you’re responsible for $2,000 of any loss.

 

Unlike the amount of a dollar deductible, which remains constant, the amount of a percentage deductible increases every time the insured value of your home increases. For example, with a 1% deductible, if your home’s insured value increased from $100,000 to $110, 000 upon renewal, you would be responsible for $1,100 of a loss, instead of the $1,000 you were responsible for during the prior policy term.

Choosing a Deductible

 

You may be able to choose the amount of your deductible. This is important because the amount of your deductible can have a direct impact on how much your insurance costs. Choosing a higher deductible means your insurance company bears less of the risk for damage to your home, and this can translate into lower premiums for you. The disadvantage to choosing a higher deductible is that you are responsible for a larger portion of any loss. On the other hand, if you choose a smaller deductible, you’re responsible for a smaller portion of any loss, but your premiums will likely increase. Don’t be afraid to ask your agent or company representative to explain what deductible options are available to you, and how each option will impact your coverage and the price of your insurance.

 

 

David Nardecchia

 

In 1980, I went to work at the Texas Department of Insurance (TDI). Early in my career I found a passion for property and casualty insurance. To broaden the scope of my knowledge, I took numerous property and casualty insurance classes and achieved the Chartered Property and Casualty Underwriters (CPCU) designation in 1995. I retired from TDI in 2010 as the Deputy Commissioner of Personal and Commercial Lines of Insurance. I have always enjoyed helping others, including assisting with their insurance-related issues. In 2012, I had the opportunity to come to the Office of Public Insurance Counsel (OPIC). Today, I share my knowledge and experience to help empower insurance consumers.