Why does my home insurance have two deductibles and what are they for?

Jun 7, 2021 | Personal Insurance

Every homeowners’ insurance policy includes a deductible. Deductibles serve as a shared risk between the insurance provider and the homeowner. But have you ever wondered why you have two home insurance deductibles and what they’re for?

Home Insurance Basics

Homeowner’s insurance covers two types of deductibles: dollar amounts and percentages. A dollar amount deductible is a fixed amount you have to pay when a covered loss occurs. A percentage deductible is an amount you have to pay based on the percentage of the total amount of your coverage.

Deductibles and your Insurance Coverage

In choosing the appropriate coverage for your home, you should consider the best home insurance deductible. Deductibles are an essential part of the cost of your homeowner’s insurance. You have an option to pay as much as you can afford for your deductible. To get the most value for your money, it is essential to carefully weigh down which deductible will serve you best.

Dollar Amount VS Percentage Deductibles

The dollar amount deductible ranges from $500 to $2,000. Regardless of the value of the property claim, your deductible remains the same. If repair costs fall below the dollar amount deductible, the insurance provider will not compensate you.

The main advantage of dollar amount deductibles is they are permanently fixed amounts. No matter how costly the claim may be, you will always pay the agreed fixed amount. What are the cons? You’ll have to pay a higher premium, especially when you decide to opt for the minimum dollar amount. 

A percentage deductible refers to the agreed percentage of deductible. The insurer calculates your deductible based on the percentage of the total home value insured. Most companies offer one to two percent of the total for the deductible. Most insurance providers use this deductible to cover wind, hail, and hurricane damages.

Homeowner’s Insurance Coverage

The most common homeowner’s insurance coverage (HO3) covers the following:

  • Coverage for dwellings and structure of your home

This covers damages to the home structure and other structures. Examples are fences, sheds, and detached garage.

  • Coverage for personal belongings

This protects your articles in case of theft, damage, or loss.

  • Coverage for personal liability

This policy also protects you from any liability costs you and your family caused. It also includes damages and injuries caused by your pets. Furthermore, it covers medical payments for visitors injured in your home.

  • Coverage for additional living expenses (ALE)

Some damages can cause homeowners to live away from home. Costs of living away from home like hotel bills are also covered by this policy.

As with any insurance coverage, HO3 excludes property damage from natural disasters. Taking into account climate change, it’s best to get additional coverage in case of a natural disaster.

Disaster Deductibles

Natural disasters are excluded from standard homeowner’s insurance coverage. These include damages from earthquakes, floods, and hurricanes. To provide more protection against these risks, it would be wise to purchase an add-on policy. Insurers offer add-ons such as hurricanes, earthquakes, and flood insurance coverage. 

How Deductibles Affects your Premium

The deductible is inversely proportional to your homeowner’s insurance premium. As the deductible increases, your premium goes down or vice versa. The question is which is best for you – a low deductible with lower premiums or a high deductible with higher premiums? This is where your financial capability enters. To determine which deductible is suitable for you, an assessment of your financial situation and capability is a must.

Homeowners who opt for a higher dollar amount deductible tend to save a lot from their annual premiums. Homeowners who opt to pay a $2,500 deductible from Denver, Colorado, can get 14%-22% savings from their annual premium rates. 

How to Choose the Right Deductible

Choosing the right deductible boils down to one important factor: your financial capability. It is important to assess your financial status and how much money you can afford to share in the case of an insured loss. 

Factors to consider when choosing the right deductible

There are many factors to consider in choosing a suitable deductible for your homeowner’s insurance coverage. 

  1. Financial Capability

The first and most important factor to consider is your financial capability. Do you have enough emergency funds in case of property damage? If so, you may go for a higher deductible.

  1. Value of Property 

Insurance premium depends on the value of your home. Premiums and deductibles are usually based on the repair or replacement costs of your property. 

  1. Disaster Deductibles

One key factor to consider is the location of your home. Homeowners from areas with an increased incidence of natural disasters should purchase an add-on insurance coverage. Repair and replacement costs of these perils are usually expensive. That’s why insurance companies often set a higher minimum deductible for these kinds of peril. 

  1. Property Condition and Maintenance

When deciding on which deductible to get, it is critical to assess your home condition. Is your home consistently checked and maintain? Or just have it checked when damages arise? A well-maintained home is less likely to encounter major damages and repair which makes it easier to opt for a higher deductible. 

  1. How much you can save

Which deductible can you save the most? If you’re a pro-active homeowner and can maintain your home, damages are less likely. If you think you’re less likely to file claims, going for a higher deductible can save you more money.

  1. Mix and Match Deductibles

Some insurance providers offer a customized split deductible to meet customer’s needs. A split deductible is a combination of dollar amount and percentage deductible. In split deductible, certain risks like hurricane and hail are under percentage deductible. All other risks fall under the dollar amount.

Cost-saving Insurance Tips

  1. Shop around for Competitive Insurance Rates

Homeowners’ insurance rates vary depending on the insurance company. It is beneficial to purchase homeowner’s insurance coverage from an independent insurance company that partners with various insurance providers. This will help you compare different home insurance coverage and rates.

  1. Skip Minor Claims

It is better to pay for minor expenses to reduce the number of your claims. Remember, every time you file a claim, your next insurance premium quote will go up as well. So it is best to file claims wisely.

  1. Maintain Safety at Home

Most accidents can be preventable. There are some ways to avoid accidents and property damages like:

  • Childproof your home. Installing covers on electric outlets and securing large furniture can greatly reduce the risk of child accidents.
  • Use of non-skid rugs to avoid slip and fall accidents.
  • Train dogs to socialize with other people. This will reduce the chances of dogs attacking other people.
  1. Raise Deductibles

Remember that you will only spend money out of your pocket if you file a claim. You may think that getting a high deductible is a financial burden. But if you maintain your house and don’t file insurance claims often, you’ll see how much money you can save over time. 

  1. Take Advantage of Policy Discounts

Most insurance companies offer a variety of discounts. Take advantage of all the discounts you may be eligible for. It is important to discuss this with your insurance agent to make sure you avail of discounts you’re qualified for. Some of the insurance companies that offer discounts are American Strategic Insurance, Travelers, MetLife, and State Auto. 

Tips on getting policy discounts:

  • Bundling multiple policies like auto and home insurance. 
  • Newly constructed homes can be eligible for discounts as it is less prone to damages. Insurance companies can give as high as 40% discounts for newly constructed homes.
  • Full payment of annual insurance premium.
  • Pro-active home maintenance. Home improvements can qualify you for some insurance discounts. Additional home protection like standby generators, impact-resistant roofs, and storm shutters lowers the risk of home damage. Insurance companies often give discounts for houses with fewer associated risks.
  • Build a good credit score. Most insurance companies use a credit-based insurance score to estimate your insurance premium. No matter what kind of insurance coverage you aim to get, a good credit score will always save you some cash.
  • Welcome and loyalty discounts. Some insurance providers give small discounts for newly signed-up policyholders. Long-time clients can avail themselves of loyalty discounts. Policyholders with continuous renewal for 3 years can be eligible for loyalty discounts.
  • Advance payment of insurance premiums can also give you some discounts.
  • Automatic bank payment can also give you up to a 3% discount. 
  • Professionals like military, firefighting, engineering, educators, and emergency responders are qualified for discounts.
  • Installation of security systems like central monitoring, burglar alarms, and dead-bolt locks. 
  • Installation of fire prevention and detection systems greatly reduces the chances and damages of fire. Examples are smoke detectors, fire extinguishers, alarms, and sprinklers.
  1. Avoid high-risk stuff

Swimming pools, playgrounds, and trampolines come with safety risks and hazards. These things contribute to the increase in your home insurance premiums.

Home is one of the most valuable assets you need to protect. Insurance providers help homeowners to ensure their home is adequately protected. Deductibles make sure that insurance companies do not solely bear the responsibility of protecting your homes, but homeowners as well. It is important to find the balance between what you can afford to pay and the quality of protection you can get. 

We can definitely help

Want the best insurance coverage for the best value? AIS has your back! We have excellent insurance agents who can assist you in finding the appropriate homeowner insurance coverage according to your needs. Call us toll-free today at (855) 973-1202 or (855) 712-6584!