Understanding Your Insurance Deductibles

Deductible defined

A deductible is an amount of money that you yourself are responsible for paying toward an insured loss. When a disaster strikes your home or you have a car accident, the amount of the deductible is subtracted, or “deducted,” from your claim payment.

Deductibles are the way in which a risk is shared between you, the policyholder, and your insurer. Generally speaking, the larger the deductible, the less you pay in premiums for an insurance policy.

A deductible can be either a specific dollar amount or a percentage of the total amount of insurance on a policy. The amount is established by the terms of your coverage and can be found on the declarations (or front) page of standard homeowners and auto insurance policies.  

State insurance regulations strictly dictate the way deductibles are incorporated into the language of a policy and how deductibles are implemented, and these laws can vary from state to state.

How deductibles work

For dollar amount deductibles, a specific amount would come off the top of your claim payment.

For example, if your policy states a $500 deductible, and your insurer has determined that you have an insured loss worth $10,000, you would receive a claims check for $9,500.

Percentage deductibles generally only apply to homeowners policies and are calculated based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from any claim payment. In the event of the $10,000 insurance loss, you would be paid $8,000. In the event of a $25,000 loss, your claim check would be $23,000.

Note that with auto insurance or a homeowners policy, the deductible applies each time you file a claim. The one major exception to this is in Florida, where hurricane deductibles specifically are applied per season rather than for each storm.

Deductibles generally apply to property damage, not to the liability portion of homeowners or auto insurance policies. To use a a homeowners policy example, a deductible would apply to property damaged in a rogue outdoor grill fire, but there would be no deductible against the liability portion of the policy if a burned guest made a medical claim or sued.

Raising your deductible can save money

Continue reading this article on the Insurance Information Institute website.

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