The definition of deductible used to be simple: It was the dollar amount, stated in your homeowners insurance policy, that you would pay to repair property damage before your insurance coverage would start to kick in.
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In other words, if you had a $1,000 deductible and a fire caused $5,000 worth of damage to your kitchen, you’d pay the first $1,000 to fix it, and your insurance company would pay the remaining $4,000.
But insurers recently have started offering different types of deductibles as a way to keep premiums lower. So an element of homeowners insurance that was relatively straightforward has grown increasingly complicated.
How are deductibles changing?
Three major trends affect deductibles right now. They are:
Higher deductibles. The amount for “flat dollar-value” deductibles has been creeping up in the past few years; where a $250 amount used to be relatively common, many insurance companies now encourage their customers to take on $1,000 or more worth of risk. In fact, some insurers don’t even offer the lower deductibles anymore. They aren’t the only ones driving this trend: During the recession of 2007–2009 and the subsequent recovery period, many homeowners chose higher deductibles to keep their monthly insurance payments down. Those people often found they were comfortable with the higher risk and kept the higher deductible even after their financial situation improved.
Split deductibles. Insurance companies offer this type of deductible for people who want to take on higher risk for certain types of damage and maintain a lower risk level for others. For example, in some regions of the country, insurers will allow you to have one deductible for wind and hail damage, and another for everything else.
Percentage deductibles. Rather than being set at a flat dollar value, the deductible is stated as a percentage, typically 1 or 2 percent of your “dwelling coverage,” or the amount your policy states you’d need to completely rebuild your house (not including replacing the contents). In other words, if your dwelling coverage is $300,000 and your deductible is 1 percent, you’d pay the first $3,000 of any repair. Percentage deductibles are often higher than flat dollar-value deductibles, but they also typically come with a lower premium.
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