What Should Your Home Insurance Deductible Be?

An illustration of a house with a dollar sign in the background, representing the concept of home insurance deductible.
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12.6 million homes across Canada have homeowners insurance coverage. This vital insurance protects you in the case of damage to your home and can provide a financial lifeline following a catastrophic event.

However, getting homeowners insurance coverage will cost you. Most people pay annual or monthly premiums on their insurance policy with the average annual cost amounting to $1,284. That said, there are many things that can affect the cost of your insurance premiums.

In particular, your home insurance deductibles can have a big impact on the cost of your premiums. So what are these and why can they affect your premiums? Read on to find out more!

What Are Home Insurance Deductibles?

If you need to make an insurance claim, your insurer will pay out on damages up to the value of your policy. For example, if you have coverage for up to $250,000, this is how much they will cover in repairs and property replacements on a single claim.

For example, let’s say you have a $500 deductible on your policy and a fire causes $10,000 worth of damage in your home. In that case, you are responsible for the $500 deductible. As a result, your insurer will payout $9,500 after they take into account the $500 deductible. (Again, the insured does not have to pay anything. The total payout is simply $10k – $500 = $9,500.)

How Do Homeowners' Insurance Deductibles Work?

A standard homeowners insurance deductible comes as part of most policies. You are responsible for a deductible on claims involving: 

  • Damage to your property
  • Fires
  • Burst pipes and other water damage
  • Theft

Other areas of insurance do not always involve deductibles. For example, most liability coverage doesn’t require you to pay a deductible. However, to be certain, it is worth checking with your insurer before you sign a contract.

If you experience damage that is valued below the cost of your deductible, this insurance company will not allow you to make a claim.

There are several different ways that insurers can work out your deductible cost. Let’s take a closer look at these.

Different Types of Homeowners' Deductibles to Consider

Your insurer may offer different types of deductible costs. These essentially involve different ways of figuring out how much your deductible will be. Most insurance companies have a simple dollar-amount deductible on their homeowners insurance policy but there are alternatives.

Dollar Amount Deductibles

These are amounts that you agree on in your insurance contract. This is a fixed amount that you are responsible for in the event of any insurance claim you file.

Usually, a dollar amount deductible will be between $500 and $2,500. These are set before your policy begins so you know exactly what you have to manage if you need to make a claim.

Percentage Deductibles

These use your policy coverage to calculate the cost of your deductible. If you sign up for a 2% deductible, you have to cover 2% worth of your total insurance coverage for any claim you make. Obviously, this varies depending on how much you are insured for. 

If you have $400,000 worth of coverage, a 2% deductible will cost $4,000 per claim. In contrast, $10,000 will cost you $200.

Split Deductibles

These combine dollar and percentage deductibles depending on the type of claim you need to make. In this case, most standard claims will have a dollar deductible amount outlined in your policy.

However, if you need to claim for specific events your deductible will be based on a percentage of your total coverage. For example, this might apply to claims for hurricane or earthquake damage. This percentage will also appear in your policy.

Most insurance policies have a base deductible value, whether this is dollar or percentage-based. However, you can volunteer to pay more than this in order to help lower your insurance premiums. Let’s take a look at how this works.

How Do Your Deductible Affects Your Insurance Premium?

You might be wondering by now, why would anyone offer to pay a higher deductible than they need to. After all, that feels like you’re setting yourself up for more difficulty, financially, if you need to make a claim. 

However, there is a major benefit to signing up for a higher voluntary deductible and that has to do with the effect that a higher deductible has on your premium payments.

Volunteering to pay more in the event of a claim, means that the insurer would have to pay out less. This lowers their risk when insuring your home. The result is that your monthly or yearly premium payments will be lower.

This is a great way to save some money if you aren’t sure about managing the monthly premium costs. However, it is important to consider how much you could afford to cover in the event that you do have to make a claim.

It is financially risky to sign up for deductibles that are out of your budget. The last thing you want after a covered claim to your home is to find yourself struggling financially.

Find the Perfect Insurance Deal Today

As you can see, it is extremely important to consider your options for home insurance deductibles before signing up for a policy.

In order to access your coverage, you will need to cover this cost so it is important to go for an affordable figure. If you have some savings already in place, it might be a good idea to opt for a higher voluntary deductible to reduce your annual premiums.

For more help finding the right coverage to suit you, get a homeowners insurance quote today!