Home Insurance 101: Deductibles

“Deductible” is a term that you hear a lot when it comes to insurance. Most of us know that this is the amount you’d have to pay out of pocket if you have a claim. But that’s not all there is to it…

Do you know when your deductible applies or why you have a deductible in the first place? What about how to choose the right deductible amount? If you’re not sure about the answers to these questions, don’t worry – we’ve shared everything you need to know.

Why have deductibles

Your insurance policy covers you for risks that you normally couldn’t pay for yourself. Deductibles allow your insurer to keep your premium low by avoiding frivolous or fraudulent claims. It represents a sharing of the risk between you and your insurer.

What is a deductible?

When you have a claim, the deductible is the amount that’s paid out first then your insurer covers the remaining cost. Depending on your insurer, the type of coverage or policy, a deductible can be a set dollar amount or a percentage.

Here’s an example. Let’s say you experience a loss or damage that’s covered by your home policy. Any expenses that are below the deductible amount are your responsibility. The amount that’s over and above your deductible is our responsibility. This applies to any single loss, unless your policy says otherwise.

If you have a $10,000 loss and you chose a $1,000 deductible, your insurer would cover the remaining $9,000.

When does the deductible apply?

On a standard homeowners’ policy, your deductible applies in almost all cases for property loss or damage. There are some instances where you may not have to pay a deductible. Some insurers will waive your deductible if your claim is over a certain amount – with Sonnet this is $25,000.

If you’ve added optional coverages, those may include deductibles that are specific to those types of claims. If you’ve added specific (often high value) belongings to your policy there is no deductible for these items. Earthquake coverage, on the other hand, has its own deductibles and limits.

Should the deductible be high or low?

A high deductible will help lower your premium – just keep in mind that you’ll need to be able to pay this out of pocket in the event of a claim. Choosing a deductible that’s too low will likely cost you more in the long run. Ultimately, the value of your deductible is up to you depending on how much risk you’re willing to take on. Our best advice is to choose an amount that you can comfortably afford if you ever have to make a claim.

Find out how easy home and auto insurance can be.