The Impact of Deductibles on your Home Insurance

By Maude Gauthier | Published on 06 Jun 2024

Home Insurance Deductibles

A home insurance deductible is the amount of money you pay out of your pocket if you make a claim. When it comes to selecting the right home insurance policy, it’s vital to understand the deductible because it can increase or decrease your premium. Adjust your deductible realistically when you’re comparing quotes for home insurance.

How much is your deductible?

If there’s water damage in your home and you make a claim to your insurer to cover $10,000 in damage, they probably won’t pay the full amount. Your deductible may be $500 or $1,000, for example. In this case, the insurer would pay $9,500 or $9,000, and you would pay the balance.

An insurer almost always includes a deductible in a home insurance policy. This keeps the client’s premium as low as possible. For example, if you go from a $500 to a $1,000 (or more) deductible, your monthly insurance payments should drop slightly. A $0 deductible is possible, but your monthly payments will rise accordingly.

Insurance providers design deductibles to deter policyholders from making small frequent claims, which ultimately drive up the price of premiums for everyone.

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Deductibles that apply to particular circumstances

In some circumstances, insurance companies apply different deductibles to certain types of claims. Particularly where there is a higher risk due to location or the type of intended use of the property.

Some examples of different deductible clauses are:

Crime Deductible

This is common in situations where the homeowner rents out their home or owns a vacation property. These types of situations are at greater risk of burglary and vandalism. Therefore, specific coverage for these situations is crucial. Not all standard home insurance includes coverage for a rental or vacation property.

Earthquake Deductible

If your property is in a region at risk from earthquakes, then your insurer may insist on a separate deductible payable in the event of earthquake damage. They may offer you a higher-than-usual choice of deductibles.

Deductible for Broken Windows

This pertains to claims for broken windows which is part of your home. Some insurers will allow you to eliminate this deductible in exchange for a small increase in your premium.

Flood Deductible

If your home qualifies for water damage insurance, the deductible will apply in the situation of a flood caused by sewer backups, among other things.

Hail Deductible

Some areas are at greater risk for hail damage. If your home insurance includes this protection, the deductible would apply to a claim from a hailstorm. Hail can damage everything from roof shingles to skylights and eavestroughs.

Select the right deductible amount for you

It’s best to set your deductible amount on the higher side if you can. This is especially true if you have emergency savings you can use if you need to make a claim on your home insurance policy.

This will keep your insurance premium lower and save you money. It also shows your insurance company that you do not intend to use your policy for unnecessary and small claims. Your insurer can then offer you a lower premium because you are unlikely to make an excessive number of minor claims.

But it’s also important to be realistic about what you could afford to pay in the event of a claim, bearing in mind that your circumstances might change in the future. Don’t be tempted to choose a high deductible simply to save a bit on your premium. Especially if you have limited amounts of savings.

Avoid making a claim, if you can

Bear in mind that you don’t have to make a claim if you have damage that is above your deductible by a small amount. Submitting a claim to your insurer can result in any claims-free discounts that you benefit from being removed, which means you will pay a higher premium at renewal.

If you were to submit a high number of claims, your insurer may charge you an additional amount, called surcharges. It’s much better to manage your insurance premium with a reasonable deductible amount and avoid small claims altogether, whenever possible.

Changing your deductible

Most insurers will allow you to change your deductible. They may allow you to change it anytime, or only at the time of policy renewal, such as 12 months after setting it up.

Maude Gauthier is a journalist for Hardbacon. Since completing her Ph.D. in communications at University of Montreal, she has been writing about finance, insurance and credit cards for companies like Fonds FMOQ and Code F. As a responsible user of credit cards, she can spend hours reading the fine print to fully understand their benefits. Because of their simplicity, she developed a preference for cash back cards. After suffering steep increases with her former insurer, she can now proudly say that she saved hundreds of dollars by shopping around for her auto and home insurance. In her free time, she reads novels and enjoys streaming popular shows (and possibly less popular shows, like animal documentaries).