Deductible

A deductible is the amount you agree to pay out of your own pocket on a covered claim before the insurance company pays the remainder. It is your share of the loss, and it applies per claim. If your deductible is $1,000 and you have a $9,000 claim, you pay $1,000 and the carrier pays $8,000. A second unrelated claim in the same year for $1,500 means you pay $1,000 on that one too -- deductibles reset per claim, not per policy year (unlike health insurance, where an annual deductible accumulates across multiple events).

Higher deductibles mean lower premiums in a predictable relationship. Raising a homeowners deductible from $1,000 to $2,500 typically reduces the annual premium by 10 to 20 percent. Raising it further to $5,000 can cut it by 25 to 35 percent on some carriers. The right deductible is the highest amount you could pay in a bad year without creating genuine financial hardship. If paying $2,500 unexpectedly would be a real problem, keep the deductible lower and pay the higher premium. Insurance is not the place to accept financial risk you cannot absorb.

Watch for policies with separate deductibles for specific perils. Wind and hail deductibles on homeowners policies in storm-prone areas are often written as a percentage of the dwelling coverage limit, not a flat dollar amount. A 2 percent wind-hail deductible on a $400,000 home means $8,000 out of pocket on any hail or wind claim, regardless of the flat deductible listed elsewhere on the dec page. Always confirm which deductible applies to which type of loss when reviewing your policy.