Homeowners insurance deductibles play an important role in determining how much homeowners pay out-of-pocket before their insurance coverage kicks in. Understanding how deductibles work can help homeowners choose a home insurance policy that aligns with their financial situation and risk tolerance.
Read on to learn more about the different types of deductibles, how they impact insurance claims, and how to select the right option for your home insurance plan.
Table of Contents:
- What is a homeowners insurance deductible?
- Why do home insurance deductibles exist?
- Types of homeowners insurance deductibles
- How deductibles affect your home insurance policy
- Choosing the right home insurance deductible for your needs
- When and how to adjust your home insurance deductible
At a glance:
- Higher deductibles generally lead to lower premiums, while lower deductibles generally result in higher premiums.
- Selecting the right deductible involves balancing your financial comfort level, risk tolerance, and potential premium savings.
- It's important to review and adjust your deductible during policy renewal, after significant changes in your home's value, or if your financial situation changes.
What is a homeowners insurance deductible?
After the claim is filed and the loss is determined to be covered, the deductible is the amount you agree to pay out of your own pocket for the estimated covered damage. It's the portion of the expenses that you are responsible for before your insurance policy starts paying for the remaining repairs or replacement costs.
It's important to remember that the homeowners insurance deductible typically applies per insurance claim, not per policy period. So, if you experience two separate incidents that result in covered damage during your policy term, you would typically need to pay your deductible for each insurance claim.
Why do home insurance deductibles exist?
It’s easy to view deductibles as an added burden, but they do offer some advantages.
Lower premiums
This is the most obvious benefit. By agreeing to bear a portion of potential losses, policyholders typically lower their monthly or annual premiums.
Focus on significant losses
Insurance is designed to protect against substantial financial losses. Deductibles help ensure that insurance funds are primarily used for significant events.
Types of homeowners insurance deductibles
There isn't a one-size-fits-all approach when it comes to home insurance deductibles. You'll generally encounter a few different types.
Fixed dollar deductible
This is the most common type of insurance deductible. With a fixed dollar deductible, you choose a specific dollar amount that you will pay before your home insurance coverage kicks in.
For example: your home insurance policy has a $1,000 deductible and you experience covered damage that costs $5,000 to repair. You are required to pay the initial $1,000 deductible, and then your home insurance would cover the remaining $4,000. Conversely, if the damage only amounted to $800, which is less than your deductible, you would be responsible for the entire cost, and you wouldn't receive a payout from your insurance company.
Percentage-based deductible
A percentage-based deductible is calculated as a percentage of your home's insured value. This means the actual dollar amount you pay can fluctuate depending on how much your home is insured for.
For instance, if your home is valued at $500,000, and your homeowners insurance deductible is set at 2%, in the event of a covered loss, you would be responsible for paying 2% of $500,000, or $10,000, before your insurance coverage applies.
Special peril deductibles
In some cases, your insurance policy might have separate—and often higher—deductibles for specific types of losses. Common examples include damage caused by wind / hail, hurricanes, earthquakes, or flooding.1
For instance, while your standard deductible might be a fixed $10,000 for most perils, your policy could require a 5% deductible of the insured value for wind / hail damage. This means that if the wind / hail causes damage to your $500,000 home, you might have to pay $25,000 (5% of $500,000) before your insurance helps with the remaining expenses.
How deductibles affect your home insurance policy
The deductible you choose has a direct impact on several aspects of your home insurance policy:
Premium costs
Opting for a higher deductible generally results in a lower insurance premium. This is because you are agreeing to take on more of the initial cost in the event of a claim, reducing the insurer's potential payout. Conversely, a lower deductible typically means a higher insurance premium because the insurer takes on more of the financial burden.
Claims process
When you experience a covered loss, your deductible amount will be subtracted from the total insurance claim payout.2 For example, if you have a $500 deductible and your covered damage amounts to $3,000, the insurance company would pay you $2,500. If the cost of the damage is less than your deductible, you will not receive any payment from your insurer.
Experience Peace of Mind with Openly
You deserve home insurance coverage that's straightforward and exceptional. Openly delivers the protection and confidence you need—so you can worry less and live more.
Choosing the right home insurance deductible for your needs
Selecting the appropriate homeowners insurance deductible involves careful consideration of your individual circumstances and financial situation:
Assess your financial comfort level
The most important factor is determining how much you can realistically afford to pay out-of-pocket in an emergency. Consider your savings and your ability to handle unexpected expenses. While a higher deductible can save you money on premiums in the short term, you need to be confident that you have the funds available to cover that deductible if a significant event occurs.
Consider your risk level
If you live in an area prone to specific disasters like hail storms, strong winds, or even hurricanes, you might need to think differently about your deductible.
In high-risk areas, percentage-based or special peril deductibles may be more common, and you'll need to factor in the potential for a larger out-of-pocket expense. However, if you are located in an area with a lower likelihood of experiencing significant natural disasters, you may feel more comfortable with a higher deductible to save on premiums.
Balance premium savings vs. out-of-pocket costs
It's important to weigh the potential savings on your insurance premium with the potential out-of-pocket costs if you need to file a home insurance claim. Get quotes for different deductible amounts and calculate the annual premium savings for each option. Once those numbers are in hand, assess whether the savings are worth the increased financial responsibility (in the event of a claim). Sometimes, the long-term savings from a higher deductible can outweigh the potential risk, but this depends on your individual financial situation and risk tolerance.
When and how to adjust your home insurance deductible
Your home insurance needs and financial situation can change over time, so it's a part of responsible home ownership to periodically review your homeowners insurance deductible.
During policy renewal
This is a prime time to review your financial circumstances and whether or not they have changed. Reviewing your deductible at home insurance renewal time ensures it aligns with your current needs.
After home value changes
If your home's insured value increases, and you have a percentage-based deductible, your deductible amount will also increase. Make sure you are aware of this change and that you are still comfortable with the potential out-of-pocket cost.
If your emergency fund grows
If you've built up a larger emergency fund, you might consider opting for a higher deductible to take advantage of lower insurance premiums.
Adjusting your deductible amount
To adjust your deductible, you'll typically need to contact your home insurance provider or speak with a local independent agent near you. They can provide you with home insurance quotes for different deductible options and help you make the necessary changes to your policy.
Final thoughts on home insurance deductibles
Choosing the right homeowners insurance deductible requires balancing cost savings with financial preparedness. Understanding the different types of deductibles and their impact on insurance claims can help you make informed decisions about your home insurance policy.
Openly provides flexible home insurance coverage options to meet a range of homeowner needs. We encourage you to carefully consider your financial situation and risk tolerance to select a deductible that provides you with the right level of protection and peace of mind. For personalized guidance, work with a local independent insurance agent near you who can tailor deductible options to your unique circumstances.
We provide this information to help you understand insurance. Any coverage is subject to the terms of your policy. Please refer to your policy and declarations page for complete terms, conditions, exclusions and coverage details. Openly may provide links that lead to an external website that may promote goods and services that Openly does not endorse. We are not responsible for the content, claims, or representations made on the linked website. Please review their terms and policies before engaging with any offerings.
1 Insurance Information Institute. “Understanding your insurance deductibles.” Accessed 29 October 2025. https://www.iii.org/article/understanding-your-insurance-deductibles
2 Ibid.
