Understanding Home Insurance Deductibles

Your deductible plays a massive role in both your monthly premium and your out-of-pocket costs during a claim. Here is how to choose the right one.

What is a Deductible?

A deductible is the amount of money you agree to pay out of pocket before your insurance company starts paying for a covered loss.

Unlike health insurance, where you might have to meet an annual deductible before coverage kicks in, home insurance deductibles apply per claim. If you file a claim for hail damage in May and another claim for a kitchen fire in October, you will pay the deductible both times.

Flat Deductibles vs. Percentage Deductibles

In Illinois, you will generally encounter two types of deductibles on your home insurance policy:

• Flat Dollar Deductible: A specific dollar amount, such as $1,000, $2,500, or $5,000.
• Percentage Deductible: A percentage of your home's Dwelling Coverage (Coverage A). For example, if your home is insured for $400,000 and you have a 1% deductible, your out-of-pocket cost for a claim is $4,000.

Special Deductibles for Wind and Hail

Because severe storms are common in the Midwest, many insurance carriers in Illinois mandate a separate, higher percentage deductible specifically for wind and hail damage. You might have a $1,000 flat deductible for fire or theft, but a 1% or 2% deductible for wind/hail. It is critical to review your policy to know if you have a split deductible.

How to Choose the Right Deductible

Choosing a deductible is a balancing act between your monthly budget and your emergency savings.

• Higher Deductible: Lowers your monthly premium, but requires you to have more cash on hand in an emergency. It also discourages filing small claims, which can keep your rates lower long-term.
• Lower Deductible: Increases your monthly premium, but means less financial stress if disaster strikes.

We generally recommend choosing the highest deductible you can comfortably afford to pay out of savings with 24 hours' notice.