This guide is general information, not insurance or legal advice. Coverage, prices and rules vary by insurer and by state, so read your policy documents and check with your insurer, a licensed agent or your state’s department of insurance before you decide.
Key facts
- A deductible is subtracted from your claim payment, and on auto and homeowners policies each claim generally carries its own deductible.
- Percentage deductibles are based on your home’s insured value, not the cost of the damage, so the dollar amount can be much larger than a flat deductible.
- Many coastal policies carry separate hurricane or wind/hail deductibles, often a percentage of dwelling coverage, triggered by named storms or official warnings.
- Most insurers recommend a homeowners deductible of at least $500, and raising it to $1,000 may save as much as 25 percent on the premium.
- Before raising a deductible, check that you could cover the full amount from savings and ask how your state’s rules apply.
Raising a deductible is one of the clearest ways to lower an insurance premium, but the terms behind that trade are easy to skim past. A deductible is not always a flat dollar figure, it does not work the same way on every claim, and in storm-prone areas a second deductible can hide inside the same policy. Here are the terms to understand first.
What a Deductible Is and When You Actually Pay It
- Deductible. The share of a covered loss you have to cover yourself before the insurer pays its part. The insurer subtracts it from the claim payment, which is how risk is divided between you and the company.
- Claim payment. What the insurer sends after the deductible comes off. With a $500 deductible and a covered loss the insurer values at $10,000, the check would be $9,500.
- Out-of-pocket cost. What you pay yourself when a loss happens. A higher deductible raises this figure in exchange for a lower premium.
- Declarations page. The summary at the front of standard homeowners, condo, renters and auto policies. Your deductible is set by the terms of your coverage and appears here.
- Per-claim rule. On auto and homeowners policies, each new claim comes with its own deductible rather than a single annual amount. Florida and Louisiana hurricane deductibles are the exception, applying once per season.
You do not pay the deductible when you buy the policy or for simply carrying coverage. It comes into play only when you have a covered loss and file a claim.
Dollar Deductible vs Percentage Deductible
- Dollar deductible. A flat amount, such as $500 or $1,000, subtracted from any claim payment. Homeowners deductibles of this kind generally range from $500 to $5,000 or more, depending on the policy.
- Percentage deductible. A deductible figured as a stated share, such as 2 percent, of the amount the home is insured for. These generally apply only to homeowners policies and are common where severe weather is a concern.
The percentage is figured on the amount your home is insured for, not on the cost of the damage. If your house is insured for $100,000 and the policy has a 2 percent deductible, $2,000 comes off every claim payment:
| Loss | Deductible | Insurer pays |
|---|---|---|
| $10,000 | $500 flat | $9,500 |
| $10,000 | 2% of a $100,000 home ($2,000) | $8,000 |
| $25,000 | 2% of a $100,000 home ($2,000) | $23,000 |
Because the percentage applies to the insured amount, the dollar figure can grow. If your dwelling coverage rises because of construction costs, home improvements or coverage updates, the deductible rises with it.
Risk to know
A percentage deductible is based on the home’s total insured value, not the size of the repair. A homeowner with a $500,000 dwelling limit and a 2 percent deductible would owe $10,000 before the insurer pays anything on a claim.
Separate Wind and Hail Deductibles in Storm States
Percentage-based hurricane deductibles spread after Hurricane Hugo hit South Carolina in 1989 and Hurricane Andrew struck Florida in 1992. Losses were far larger than insurers had expected, and to keep reinsurance available they asked regulators to let them tie hurricane deductibles to a percentage of a home’s insured value, shifting more of the cost of severe wind onto policyholders.
- Wind/hail deductible. A separate deductible for damage caused by windstorms or hail. Depending on the state and the insurer, it can be a flat amount such as $500 or $1,000, or a percentage of the dwelling coverage limit.
- Hurricane deductible. A special deductible for hurricane losses, built into many homeowners policies issued in 18 coastal states and the District of Columbia. Standard deductibles are usually $500 or $1,000; hurricane deductibles are typically tied to a percentage of insured value.
- Trigger. The event that must happen before a hurricane deductible applies. States and insurers set their own triggers, which may tie the deductible to the National Weather Service naming a tropical storm, issuing a hurricane watch or warning, or rating the storm’s intensity.
- Timing window. Most triggers include a timing factor, covering damage within 24 hours before a storm is named or makes landfall up to 72 hours after the hurricane is downgraded or a watch is cancelled.
- Mandatory deductible. A deductible required by state law or regulation, or imposed by the insurer, with no choice offered to the policyholder.
- Optional deductible. A higher deductible, used mostly in less vulnerable areas, that policyholders can choose in order to pay a lower premium.
Disaster-prone areas can carry more than one of these. Policies near the coast in the East may have a separate windstorm deductible, hail-vulnerable states a separate hail deductible, and a separate earthquake policy its own deductible.
One Deductible or Several: How Coverage Sections Differ
- Peril-specific deductible. Some policies use a percentage deductible only for certain types of losses, such as wind or hail, while other claims on the same policy carry a different deductible. Not every coverage on the policy has a deductible at all.
- Liability portion. Deductibles generally apply to property damage, not the liability section of a policy. If a guest burned in a grill fire made a claim or sued, no deductible would reduce the payout.
- Scheduled item. A valuable item, such as an engagement ring, added to the policy under its own coverage. Items scheduled this way typically carry no deductible.
How a Higher Deductible Changes Your Premium
- Premium. What you pay an insurer to keep a policy in force. As a rule, the bigger the deductible, the smaller the premium.
- State regulation. State insurance rules dictate how deductibles are written into policy language and how they are implemented, and these laws vary from state to state.
Most insurers recommend a homeowners deductible of at least $500. Raising the amount to $1,000 may save as much as 25 percent on the premium, so ask for quotes at each deductible level to see the actual difference for your policy.
The same trade applies to car insurance. A higher deductible can lower the premium but raises what you pay after a crash. Our guide to what affects car insurance rates explains which parts of your price you can change and which you cannot.
Run the Math: What You Save vs What You Risk
Work through both sides before you switch. On the saving side, ask the insurer or agent to price the policy at each deductible option, and compare the yearly premium difference against the extra amount you would owe on a claim.
On the risk side, use your own numbers. On the $100,000 home above, a 2 percent deductible means paying $2,000 before the insurer pays anything, and the insurer pays nothing at all until covered damage exceeds that amount. On a $300,000 home with a 1 percent deductible, the figure is $3,000. If the premium saving is small and the gap in what you owe is large, the higher deductible may not be worth it.
Questions to Ask Before Changing Your Deductible
- What deductible amounts can I choose for each coverage in the policy?
- Is there a separate wind, hail or hurricane deductible, and is it flat or a percentage of dwelling coverage?
- What event triggers the storm deductible, and does it apply per claim or per season in my state?
- If the deductible is a percentage, what dollar amount does it work out to at my current dwelling limit?
- Could I pay the full deductible from savings today, without borrowing?
Start with the declarations page and your insurer or agent, then your state insurance department, which regulates how deductibles are written and applied.
Deductibles are one piece of a larger picture. Our glossary of insurance shopping terms covers the rest of the vocabulary on quotes and declarations pages, and what to do if your car insurance rate goes up explains the steps when a renewal climbs for other reasons.
Questions we hear
Do I pay my insurance deductible upfront?
No. You pay nothing when you buy the policy or simply carry coverage. The deductible is subtracted from the claim payment after the insurer determines the amount of the covered loss.
What is the difference between a dollar deductible and a percentage deductible?
A dollar deductible is a flat amount, such as $500, subtracted from any claim payment. A percentage deductible is a set share of your home’s insured value, so on a $100,000 home a 2 percent deductible comes to $2,000.
Do deductibles apply to liability claims?
Generally no. Deductibles usually apply to property damage, not to the liability portion of homeowners or auto policies.
Do I pay a deductible every time I file a claim?
On most auto and homeowners policies, yes. The exceptions include hurricane deductibles in Florida and Louisiana, which apply once per season rather than for each storm.