Average Deductible For Home Insurance

Oct 6, 2022 | Mortgage Guides

What Is The Average Deductible For Home Insurance

Buying a home is a huge undertaking. Some steps often get overlooked until it is time to make a decision. A typical example of that is choosing a deductible for homeowners insurance. 

‍Mortgage lenders require home insurance, and the deductible is a significant factor in determining the costs. Policyholders get to select their deductible. Alas, with such an important decision, homeowners must have a firm understanding of the topic. 

‍The following guide will address questions and concerns about home insurance deductibles, from the average amount to choosing the proper share. 

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What Is a Deductible for Home Insurance?

A deductible is an out-of-pocket amount a homeowner must pay for damages before their insurance company covers the rest of the claimant’s costs. When establishing this policy, applicants will choose the deductible amount. Yet, a deductible only has to be paid when filing a claim. 

‍Below, we have collected some essential information about home insurance deductibles. 

How Does a Home Insurance Deductible Work?

A deductible is unlike paying the premium or bill to the insurance company. Instead, policyholders are responsible for paying it if they file a claim. The amount is subtracted from the total, leaving the rest to the insurance company. 

The deductible gets paid first. Therefore, if the property damage costs less than the deductible, the insurer pays nothing. When that is the case, filing an insurance claim is not necessary. 

What Factors Affect the Amount of the Deductible?

The most substantial factors impacting the cost of home insurance and, as a result, one’s deductible is the home’s location and the price to rebuild it. The deductible should not exceed the policyholders’ expendable cash as there is no predicting when a claim will need to be filed.

‍Other potential factors include credit standing, payment history, bundling policies, conditions of the chosen insurance company, and the type of deductible. 

What Are the Types of Homeowners Insurance Deductibles?

There are three homeowners insurance deductibles: a dollar amount, a percentage, and a hybrid of the former two. Following is more information on each:‍

Flat Dollar Amount Deductible

The most common insurance deduction is paying a fixed rate. The amount you pay stays the same, no matter the expenses on your claims. Standard flat deductibles are often between $500 and $2,500 but can vary depending on the homeowner’s circumstances.  

Percentage Deductible

Another deductible type, often reserved for specific claims, is a percentage deductible. That means homeowners pay a percentage of the total insured amount for each claim. 

‍This type of deductible is most often utilized for weather-related claims such as hail storms, hurricanes, and wind damage.   

Split Deductible

The least common type is a hybrid, known as a split deductible. Some homeowners want the best of both worlds and choose to use the flat deductible for most claims but also have the percentage option as a reserve for events like an earthquake or hurricane. The insurance company will often specify what damage qualifies for each option. 

Average Deductible for Home Insurance

Average homeowners insurance premiums vary by location. Despite the fluctuation in rates, policyholders’ average deductibles remain similar. A flat deductible of $1,000 is the most popular choice throughout all 50 states. It provides a good balance of protection and affordability.

‍The majority of homeowners follow suit by choosing the average deductible amount, but some situations call for a change. Deductibles often stay within $250 to $2,500, but policyholders may choose well beyond that, even up to $100,000. 

‍There are a variety of options when choosing your home insurance policy. Being able to adjust the deductible also means that folks can tailor their coverage to fit their needs. Get the most out of your insurance policy by choosing a sufficient deductible, whether it’s average or not.

How Much Is My Home Insurance Policy Premium Affected By Having a Deductible?

The amount of your premium and deductible depend on each other. They are often inverse proportionate; in other words, the lower the deductible, the higher the premium, and vice versa.  For the most part, that is because those with lower deductibles cost the insurance provider more money.

‍Opting for a high deductible can reduce the annual premium for coverage. Insurance companies consider this when calculating rates, as customers with high deductibles are less likely to file a claim. 

‍The drawback with high deductibles is that you are responsible for paying that much out-of-pocket for every claim. Since filing claims is a rare occurrence, choosing a high deductible to save money makes sense. Yet, ensure you have the preferred amount on hand. Home insurance’s sole purpose is to lessen the financial burden if your home is damaged, so make it simpler with an affordable deductible. 

What Is the Average Premium for Home Insurance?

Recent studies by Business Insider show that the average cost for home insurance in 2022 is $1,272. Nevertheless, these prices can vary in accordance with a home’s expected rebuilding costs and location. Case in point, a homeowners insurance policy in Idaho averages out at $799 per year, while it is up to $2,000 in Oklahoma due to the risk of tornadoes. 

‍When noticing annual premiums increasing, consider the trends of the home’s location first. 

How to Choose Your Home Insurance Deductible

Several aspects must be considered when choosing a deductible. Everyone’s financial situation is unique, so the most suitable option for you may not be the average. 

Below are three tips to determine what deductible suits you: ‍

Assess Your Financial Situation

These policies are meant to protect homeowners in the event of destruction, so ensure you can afford the deductible. While you cannot predict what claims you will file, choose an amount you are confident in your ability to pay. Evaluate your financial status and select an amount you can cover without repercussions to your monetary means.  

Consider the Home’s Location

Are natural disasters such as earthquakes, hurricanes, or tornadoes common in your area? What about the crime rates in your neighborhood? Higher risks like these examples indicate higher premiums. Therefore, a higher deductible can make it more affordable. Low-risk locations are not only ideal for your well-being but also for economic reasons. 

Evaluate Potential Savings

Raising the deductible can often impact one’s insurance bills. When consulting with potential insurance companies, inquire about how much you can save by increasing the deductible. Factor these savings into your ultimate decision, but do not increase to a figure that is not affordable on a consistent basis.  

Bottom Line

The standard home insurance deductible might suit many homeowners but do the proper research. If you have further questions or concerns, contact a representative at Wesley Mortgage for assistance. 

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