You wake up in the morning and the pipe under your kitchen sink has burst and you have destroys cabinets, floor and drywall. The cost of the repair is $4,200.
You thought that your insurance company would pay for that. Rather, the claim payment is $3,200 and it’s up to you to cover up the remainder. There weren’t any errors or mistakes in the claim. It is only a deductible and it’s the most misunderstood number on a homeowners policy.
You can easily remember someone your deductible, “It’s a thousand dollars. You may not be able to explain to them how it applies, simply because it’s the only deductible on your policy, or your neighbour two towns away pays a much different rate for the same coverage simply because of their different circumstances. Let’s take a look at what exactly is happening.
What is a Deductible, really?
A deductible is the amount you’ll need to cover before your insurance company covers the rest of the costs associated with a covered loss.
There’s no fee involved it isn’t something that you pay for when you purchase the policy. Only applies when you make a claim. The deductible is the amount the insurance company deducts from the estimate, in the above example, the deductible would be $1,000 and the insurance company would pay $3,200.
Try to consider it as a gateway, rather than a fee. No amounts are deducted from any place until there is a claim. Premium and deductible are related, but it is two distinct decisions. Premium is the amount that you pay annually, even if you don’t make any claims. The deductible only applies on the day you apply it.
There are two different types of structurally distinct homeowners deductibles, and it’s not the amount of money that’s important—it’s the type of homeowner’s deductible that is.
The option is between a Flat-Dollar and Percentage Deductibles
Flat-dollar deductibles are a specific dollar amount, typically $500, $1,000, $1,500 or $2500, that is consistent regardless of the amount or cause of the claim. Well, this is the deductible you’re likely to visualize when you visualize home insurance, and in many parts of the nation, it’s the only deductible you’ll uncover.
The percentage deductible is determined by the percentage of your home’s insured (dwelling) value, and not the size of the claim. Such generally apply to particular threats, the most popular of which is wind/hail in storm-prone states and individually for hurricanes or named storms in coastal states. This is the one that’s the surprise because you would think that if your deductible is $1,000 it would cover everything, but that may only be for non-storm claims.
In practice the difference is very significant:
| Dwelling Coverage | Flat Deductible | 2% Percentage Deductible | 5% Percentage Deductible |
|---|---|---|---|
| $250,000 | $1,000 | $5,000 | $12,500 |
| $400,000 | $1,000 | $8,000 | $20,000 |
| $600,000 | $1,000 | $12,000 | $30,000 |
In coastal Florida and Texas, if you have a $400,000 house and a 5% hurricane deductible, then you would be on the hook for $20,000 before insurance kicks in on a claim for a hurricane. While your standard coverage for a kitchen fire or a burst pipe may remain the same, $1,000, your coverage for the fire and flooding in your basement could be far higher.
It’s possible that you could be unaware of the concept of having two separate deductibles on a single policy until you take an in-depth look at the declarations page or make a claim. But, it’s not the best time to find out.
The typical use of a Percentage Deductible:
Not all health insurance plans have a deductible.Not every health insurance plan offers a deductible. They are required or prevalent in certain risk areas:
- Hurricane/named storm deductibles: common in most states along the Gulf Coast and Atlantic Coast, including Florida, Texas, Louisiana and the Carolinas
- Common in hail-prone areas in the Midwest and Plains states, wind/hail deductibles typically apply to the cost of hail damage.Wind/hail deductibles are found widely in the Midwest and Plains states in hail-prone areas and are generally used for hail damage.
- Wildfire deductibles: Some carriers are starting to use deductibles in high wildfire-risk states like California and other Western states as of 2026, but this practice is not as common as storm deductibles.
If you are outside these zones you will probably have a “one flat deductible” on your policy for all the perils listed. This is easier, but it’s better to verify than to take for granted. The NAIC’s consumer notice on hurricane and named storm deductibles elaborates on the way these state-by-state rules work, including what constitutes the “trigger” that puts the higher deductibles into effect, which is typically associated with naming the storm rather than high winds.
According to the U.S. insurance industry, the higher the deductible, the lower the insurance premium. But by how much?
Insurers can use some of the extent to which they’ll have to pay for small claims as part of their price for risk. Changing up the deductible takes a little more of the risk on you and that will lower your premium.
For most people in the insurance industry, having a $1,000 deductible will lower premiums about 10–15% compared to a $500 deductible (this is dependent on the insurance company and state). If you can switch to a $2,500 deductible, that will make it even better, but of course not as much as switching to a $1,000 deductible.
If you don’t really have that much to spare, then the tradeoff doesn’t make any sense. Having a low premium that doesn’t pay the $2,500 deductible for a loss is not really saving you money. It’s passing on risk that you can’t handle! If you want to lower your homeowner’s insurance premium but have no plans to increase your deductible, read our guide to how to reduce your premium.
Consider the math story the following way: The gap of $150 per year in savings from increasing the deductible from $1,000 to $2,500 will take a decade or more of savings to make up for any single claim. That’s not a necessarily bad deal. Most of the time it’s better to have the cash on hand, and make claims as infrequently as possible. However, it’s not necessarily better to choose a higher deductible to make your policy more affordable, so it’s best to do the math.
The Mistake of Filing Small Claims
You pay the deductible before filing a claim, so it may not be worth it to file a claim for a loss that is just a little over your deductible.
With a $1,000 deductible, if the damage is $1,300, then you will receive a $300 reimbursement if you file. However, it also puts you in a position where you may be placing a claim in order to renew your insurance or even if you attempt to switch to different carriers, it could have a negative impact and cause your premium to increase by $300 or more over the next several years. Many home insurance professionals say that they only end up filing claims when the loss is “significantly over their deductible” and if the loss is “small” they should cover it themselves.
There’s an associated nitty-gritty. Other insurance companies submit claims to an industry-wide database, known as the Comprehensive Loss Underwriting Exchange or CLUE. Even if you get a small claim that you end up not using, it can still appear in that report, and will be viewed by any future insurer when you look around for a new policy. Another good reason to consider what it is you’re trying to make with a marginal claim.
Making the decision on which deductible to choose is a crucial step in picking a health insurance plan.
Of course, there is no single correct answer, but three questions will help to quickly narrow it down:
- Have the amount available in your savings that you need to pay the deductible? Otherwise, a smaller deductible (at a higher premium) will keep you from facing a coverage hole that you just can’t afford to fill. This is the one question that really matters: to be honest with yourself it isn’t about the lowest monthly charge, it’s about the monthly charge for your budget.
- How many times per year is it likely that you will have to file a claim? A higher deductible with premium savings is a good trade-off in a low-risk location for a newer home built to code or better, and this may be better overall in the long run. Higher risk locations, older roof and homes tend to work the opposite way around.
- Are there any percentage deductibles in your policy for your main risk in your area? If that is the case, plan to pay for that in addition to the other expenses. It can be several times the size of your typical flat deductible, and you can just assume you won’t be in need of it, until you are.
A comparison of the implications of Deductible Choice over time
A side by side comparison makes a difference—it’s easier to see the tradeoff when it exists. Let’s say that two homeowners have the same $350,000 home in the same low-risk neighborhood, and they begin new policies at the same time, in the same year.
Homeowner A chooses a deductible of $500, and his annual premium is more expensive. Homeowner B chooses a $2,000 deductible, and ends up saving approximately $200 per year. Even the premium savings give Homeowner B the edge: if he and his neighbor don’t file a claim for five years.
When either Homeowner A or Homeowner B makes a claim, Homeowner A will pay $500 out of his pocket, and Homeowner B will pay $2000 out of his pocket. There’s a $1,500 swing in the other direction in that one event.
There is no right or wrong answer to either of the options. It depends on your confidence that you will not make a claim, how much “breathing room” you need if you are incorrect and how important it is that you have greater certainty that you will save more on average in the long-run than that you will spend more. If you’ve already experienced a stressful and costly claim, you may be tempted to go with the lower deductible after the event even though, logically, the higher deductible makes more sense. This is a real consideration to make, not merely an optimization problem.
What If You’re Totally Unable to Pay Your Deductible?
We have to be candid about this, the situation is more prevalent than we’d like to think, but it is.
Most contractors are willing to go to work on a job even if you do not have the funds to pay your deductible when the loss occurs and then have you pay the deductible amount directly to the contractor when the claim is settled along with the insurance company’s payment. However, the degree to which this occurs will be dependent on the contractor’s own policy and cash flow – and is not guaranteed. There are some homeowners who reach a payment plan agreement with the contractor while in this situation. This is the problem you’re trying to prevent when you ask the “can you actually cover your deductible” question above – but not after it occurs.
Frequently Asked Questions
Yes, and, it happens more than you think. One policy may contain a flat wind, hail or named storm deductible in addition to the general perils deductible. Getting to know the details of the steps involved in a home insurance claim can relieve some of the anxiety when you actually need to use your deductible — our step by step walkthrough details what happens when a claim is actually made. When you are also trying to stay on top of deductibles and copays for various types of policies, our comparison of deductible vs. copay explains the difference!
Generally yes. No matter how many claims you file in the previous year, the new claim will be considered as a new claim and will come with the full deductible, unless otherwise stated in the policy. In some states, the hurricane deductible has been implemented as a “one season” deductible, which allows you to only pay the hurricane deductible once during the hurricane season if multiple hurricanes impact your home. This will depend from state to state, check with your insurance carrier.
It is generally not until the renewal date, but some insurance companies will permit it. Please check with your carrier directly for your policy’s terms.
Lenders usually require homeowners insurance but they don’t always specify how much coverage will be needed or how much your deductible is (as long as it is equal to or greater than the amount required by the lender). However, very high deductibles on a percentage basis, for areas that are prone to hurricanes, may be worth discussing with your lender before you enter into the loan, as some lenders have their own limit as to how high a deductible they will allow.
Although you may have both home and auto policies with the same company, they’re separate policies and have different deductibles. Don’t assume that the numbers correspond; it’s best to read each declarations page.
It’s disclosed on your declarations page and in your policy documents, but insurers aren’t always proactive about flagging it in plain language during the sales process. Reading the declarations page yourself, or asking your agent directly “do I have any percentage-based deductibles on this policy,” is the most reliable way to know for sure.
