What is a deductible for auto and home insurance?
If you're new to purchasing auto or home insurance, you may be asking, “What is a deductible for car insurance and home insurance?” Understanding deductibles can be confusing—but it’s important to know what they are and how they work. Let’s review the important questions together.
What is a deductible in car insurance and home insurance?
There are two main payments involved in auto and home insurance policies: your premium and your deductible. In the event of a covered claim, a deductible is the dollar amount you (the policyholder) choose to pay out of pocket to help cover the damages of your home or vehicle. After you pay your deductible, your insurance company will cover the rest of the damages up to your policy amount.
A deductible is an essential part of auto and home insurance policies to help ensure there is mutual liability for damages between company and policyholder. A deductible also offsets your premium costs, which are the monthly payments you make in your policy. Typically, a higher deductible will lead to a lower monthly premium while a lower deductible will lead to a higher monthly premium.
In general, car insurance deductibles may range from $250 to $2,000. Many home insurance deductibles could range from $100 to $5,000. Please keep in mind, deductibles differ by company.
When do you pay the deductible for car insurance or home insurance?
You’ll only need to pay your deductible in the event of a covered claim. After you pay, your insurance company covers the rest up to your policy amount. For example, if your car insurance deductible is $500—and the cost of damages to your vehicle is $1000—then you’ll pay $500. And your insurance provider will pay the next $500.
In both auto and home insurance policies, your deductible applies each time you file a covered claim.
Understanding deductible limits
Your deductible is what you’re responsible for paying first. If your damages are less than or equal to your deductible, then you’re responsible for covering these costs on your own. For example, if your deductible is $500 and the damages of your car equal $500, then you’re responsible for covering those cost of repairs.
In some cases, if the cost of damages doesn’t exceed your deductible, you might not even need to file a claim with your insurance company. This principle is generally applied to both auto and home insurance policies.
How are car and home insurance deductibles determined?
There are some key factors that determine auto and home insurance deductibles, including deductible type, policyholder choice, risk assessment and type of coverage. Some aspects differentiate the two as well.
1. Deductible type
Home insurance: When it comes to home insurance deductibles, there are two types: standard and percentage based.
A standard home insurance deductible describes the specific dollar amount you agree to pay in your insurance policy.
A percentage based deductible can be added to your policy in instances where your home has an increased likelihood of being affected by certain disasters like hailstorms or earthquakes.
A percentage based home insurance deductible is based on a percentage of your home’s insured value and typically only applies in the event of disaster-specific claims. For example, if your home is insured for $100,000 and your policy has a 1% earthquake deductible, $1000 would be added to your standard deductible payment.
Auto insurance: Standard car insurance deductibles are generally based on the specific dollar amount you agree to pay in your policy.
2. Policyholder choice
For both home and auto insurance deductibles, policyholders are given multiple options so you can pick how much your deductible (and premium) will be.
The deductible amount is selected by you when you sign your policy contract. Should your needs and budget ever change, you can review and alter your policy later.
3. Risk assessment
Home insurance: Factors like your home’s location, age, condition and susceptibility to certain disasters can impact the prices of your deductible options.
Auto insurance: Your age, gender, driving history and car’s value are all factors which can impact the prices of your deductible options.
4. Type of coverage
Home insurance: While a standard home insurance policy typically covers damage from wind, hail and storms, added protection for disasters like floods and earthquakes can lead to additional deductibles payments. These include:
- Flood insurance deductibles
- Earthquake insurance deductibles
- Hurricane insurance deductibles
Auto insurance: When it comes to auto insurance, you’ll have the option to select different deductible amounts for collision coverage and comprehensive coverage.
- Collision coverage - A type of auto insurance that covers your vehicle if it collides with another car or object.
- Comprehensive coverage - A type of auto insurance that covers damages other than collision, including theft, natural disasters or vandalism.
What kind of deductible is right for me? (High or low deductible)
The best way to know which deductible is right for you is to decide how much you’re willing to pay out of pocket in the event of a covered claim.
If you have strong savings and are looking to pay a lower monthly premium, a higher deductible could be the better choice. If you’re still building your savings and aren’t ready for large, unexpected payments, going with a lower deductible could be better.
Regardless of what size deductible you’re looking for, it’s always wise to get several quotes with different deductibles to see which plan feels best.
If you find there’s little difference in monthly premiums between plans with a $500 or $1,000 car insurance deductible, it might be best to choose the plan with the lower deductible.
Beyond your budget and savings, it’s also important to consider your claims history. Filing multiple claims means you’ll be paying your deductible multiple times. If you’re accident prone, having high deductible car insurance could hurt you financially.
Understanding deductibles will help you make confident and informed decisions when it comes to choosing your coverage. To help protect your car and house today, get a quote for your auto or home insurance policy through the TruStage™ Auto and Home Insurance program.
