How do insurance deductibles work?

Deciphering insurance deductibles can be a difficult task, unless you're an insurance expert. Whether it's car insurance deductibles, renters insurance deductibles or homeowners insurance deductibles, we're here to help you understand the differences, so that you can get the coverage that fits your needs.

How do homeowners insurance deductibles work?

Homeowners insurance may seem simple enough, but it's easy to get overwhelmed if your home gets damaged and you need to file a claim. All the various coverage components and perils are unique to your homeowners insurance policy. Understanding the ins and outs of your coverage can help you navigate repairs and the potential financial impact that a claim can have.

There are two common methods used to calculate homeowners insurance deductibles. One is a fixed dollar amount, also called a flat rate deductible. And the other, called a percentage-based deductible, is calculated based on a percentage of the insured value of your home.

A fixed homeowners insurance deductible is generally offered in amounts of $500, $1,000 and $2,000. The most common deductible is $1,000. Once you choose your rate, that's the fixed dollar amount you're responsible for paying toward the cost of repairs when you file a claim. For example, if your deductible is $1,000 and the covered repairs to your home total $3,000, your homeowners insurance will pay for $2,000 of it.

Percentage deductibles typically range from 1% to 10% of your home's insured value. So if your home is insured for $200,000 and your insurance policy has a 2% deductible, you are responsible for $4,000 toward the cost of repairs. If you have a covered loss of $30,000, your homeowners policy will cover $26,000 in damage or loss. If your home is in an area at higher risk of damage from storms, hurricanes or earthquakes, your insurance provider may require a percentage deductible.

Having a higher deductible can benefit you with a lower insurance premium. But it'll be a much bigger personal cost if you have a claim on your home. Saving for emergencies, like a potential claim to your home, is crucial. Having adequate insurance means carrying an appropriate amount of coverage for your property, personal possessions and liabilities in addition to having enough cash in the bank to be able to cover your deductible. You want to be able to afford using your insurance if something happens to your home and repairs are needed.

When do I pay the deductible for homeowners insurance?

You pay a car repair center your car insurance deductible upfront. Homeowners insurance doesn't work that way. That deductible gets subtracted from the settlement amount you get from your insurance provider to cover damages.

Here's how it works: Once your homeowners insurance claim is accepted, you'll receive payment for the amount of covered damage minus your policy deductible from your insurance provider. For example, if you file a claim for $15,000 and your homeowners insurance deductible is $1,000, you'll receive payment for $14,000.

Deductibles are assessed on a per claim basis meaning you will owe a homeowners insurance deductible every time you make a claim, regardless of how many you file or when. For instance, if a pipe bursts in January and you file a claim for $5,000, then a tree falls on your house in February and you file a claim for $18,000, you will have to pay your deductible at the time of each claim.

Keep this in mind when selecting your deductible amount and evaluate your personal financial situation as well. When deciding how much homeowners coverage you need, it's important to understand what is and is not covered in a standard policy (Opens in New Window).^{See note1}

Tailor your coverage to your needs. If you have a collection of valuable antiques or a significant amount of computer equipment in your home, the standard policy limits may not be enough for you. Talk with your insurance professional to ensure that your personal property is adequately insured with the right coverage or endorsements.

Certain perils may have separate deductibles.

You may have separate deductibles on the same policy for different causes of loss. Many homeowners policies will have a separate deductible for claims made when your home is damaged due to windstorms or hail for example. These deductibles can be a percentage of the value of the house or a fixed dollar amount. Review your declarations page for details.

How do car insurance deductibles work?

While you hope to never use your coverage, it's important to know how your car is covered by your auto insurance policy. So that you can make an informed decision, it is helpful to know about the different types of auto coverage. You should know about the value of your car, how much in premiums you can afford and what you can afford in a car insurance deductible if you ever need to file a claim. It's important to understand how auto insurance premiums and deductibles work and how they could affect your bottom line.

What is a premium in car insurance?

An auto insurance premium is the amount you pay your auto insurance provider for your car to be insured. Typically, you have the option to pay them monthly, every six months, or once a year. While some insurance companies may charge extra fees for a monthly payments plan,^{See note2} USAA does not. You may have the option to pick the monthly payment due date that works for you.

What's a deductible in car insurance?

A car insurance deductible is the out-of-pocket amount you pay toward the repairs to your car once you file an insurance claim with your insurance provider. While the amount of auto insurance deductibles can vary from state to state, options typically include $250, $500 or $1,000. Most drivers opt for the $500 deductible.

When working with your insurance professional, you can choose to set your car insurance deductible higher or lower. And what you choose will likely impact the amount of your insurance premiums. Would you rather pay a higher premium and have a lower deductible, or pay a lower premium and have a higher deductible?

With a $250 car insurance deductible, you'll likely pay more in insurance policy premiums, but have the benefit of paying less out of pocket for repairing the damage to your car before your auto insurance kicks in.

With a higher $1,000 car insurance deductible, you'll usually pay less in premiums. But you'll be on the hook to pay more out of pocket for damage repairs to your car before your auto insurance can cover the rest.

Deciding on the amount of your car insurance deductible may depend on your household budget and your ability to pay the deductible amount out of pocket before your auto insurance can pick up the remaining cost of repairing your car's damage.

It's worth noting that you can set different deductible amounts for different types of policy coverage. For instance, if you have collision coverage but don't get out on the road much or have never been involved in an accident while driving, you may feel your risk of a collision is low. So choose to set your deductible higher. On the other hand, if you drive a lot and don't want to risk having to pay $1,000 before you could be covered for the rest, you may choose a lower deductible for your collision coverage.

If you have comprehensive coverage, consider where you live. If your area has big storms and bigger trees or deer known for jumping out in front of cars, you may choose to set the deductible for comprehensive coverage lower. That way, you're not out big bucks before your insurance coverage picks up the tab. If you feel your risk of damage from hail, flooding, falling tree limbs, animals and other types of incident damage is low, you may want to go with a higher deductible for your comprehensive coverage.

Many drivers who have both collision and comprehensive coverage will keep it simple and set the same auto insurance deductible for both. Depending on your financial situation and coverage needs, consider your risk level when setting your auto insurance deductible.

When do I pay the deductible for car insurance?

You pay your car insurance deductibles directly to the vendor fixing your car. This happens before your insurance provider pays the remaining costs of repairing the damage.

Here's how it works: Once the repairs have been made and you go to pick your car, you pay the mechanic or collision center directly in the amount of your deductible. You can then drive your car home, and your insurance provider pays the remaining cost of repairs directly to the mechanic or collision center on your behalf.

With auto insurance policies, like homeowners insurance, you'll owe a deductible every time you file a claim. Unlike some other types of insurance, you don't satisfy your car insurance deductible and then be free and clear for the rest of the calendar year. For instance, if you have an accident in May and file a claim, then have another accident in August and file claim, you'll pay your full deductible for each claim.

How do renters insurance deductibles work?

Renters insurance carries a deductible, just like auto insurance and homeowners insurance.

Renters insurance deductible amounts typically range from $500 to $2,000. But some insurance providers may offer $250 or lower in certain circumstances. If you opt for a higher renters insurance deductible, you'll likely pay a lower monthly premium but more out of pocket when you need to file a claim. A lower renter's insurance deductible may cost you little more every month, but you won't have to pay as much out of pocket when you file a claim.

And much like a homeowners insurance deductible, your renters insurance deductible gets subtracted from the claims amount you receive from your insurance provider to cover damages. So if you file a claim for stolen or damaged personal property totaling $3,000 and your renters insurance deductible is $500, you'll get a payment for $2,500 for a covered claim.

Whether you decide to go with a higher or lower deductible, you can't go wrong having a renters insurance policy to protect your stuff. USAA offers renters insurance for as little as $10 a month.^{See note3} And, if you're a service member living on base, in barracks or military dorms, you can save up to 28% on a specialized renters policy.^{See note4}