Homeowners Insurance Deductibles

Loans Canada: The Country's Best Loan Comparison Platform

Homeowners Insurance Deductibles

Written by Caitlin Wood

Homeowners Insurance Deductibles

Categories

Deductibles Home Insurance Insurance

The whole point of having a home insurance policy is to give you peace of mind knowing that you’ll receive financial help in the event of damage to your home or its contents. Losses that result in thousands of dollars in damages can leave you with a big financial hole to fill. 

With the help of a home insurance policy, an approved claim will provide you with the financial compensation you need. Before your policy kicks in, however, you will first need to pay a deductible. 

Find out if you should bundle your home and car insurance policies.

What Is A Home Insurance Deductible?

The deductible is a separate cost from the monthly or annual premiums you pay. Your premiums must be paid on time and in full in order to keep your policy active and ensure that you receive compensation when required. Your deductible is a lump sum of money that you agree to pay to your insurance provider before a claim is approved and a payout is made. 

Find out if you need home insurance for an unoccupied home.

How Deductibles Affect Your Home Insurance

Your deductible affects the cost of your home insurance policy and the coverage that comes with it. Generally speaking, a more expensive deductible translates into lower premiums. A lower deductible, on the other hand, translates into higher premiums. 

Check out these 7 tips on lowering your home insurance premiums.

The good news is that you can choose the deductible amount associated with your policy. For instance, you can choose between a $500 or $2,000 deductible, and the one you select will have a direct influence on your premiums. 

Lookout Is Your Real Estate Agent Taking Advantage Of You?

Loans Canada Lookout

LOOKING OUT FOR YOUR BEST INTEREST

Types Of Home Insurance Deductibles

Deductibles on home insurance policies come in the following forms:

Standard Deductibles

The standard deductible on a homeowner’s insurance policy refers to a fixed amount that you choose when you first take your policy out. These deductibles usually range from anywhere between $500 to $2,000, though you may have lower or higher deductible options available to you. 

The standard deductible amount would be deducted from your claim total. If you file a claim for $8,000, for instance, and your deductible amount is $1,000, the insurance company would pay out the remaining $7,000.  

Lower your house costs with these homeonwer tax breaks.

Percentage-Based Deductibles

Some insurance policies may set your deductible based on a percentage of your coverage amount. For instance, if your home is insured up to $500,000 and your deductible is set at 1% of that limit, you would pay a deductible of $5,000 when filing a claim. These types of deductibles are more commonly associated with specific perils, such as windstorms and other weather-related issues. 

Check out these common reasons your insurance claims can be denied.

Additional Deductibles

Other deductibles are required to cover specific perils not covered under a standard policy:

  • Flood insurance deductibles – A standard homeowners insurance policy does not cover damage from water as a result of overland flooding outside your home. If you want coverage for flood damage, you will need to take out a specific flood insurance policy, which will come with its own deductible when a claim is filed.  
  • Sewer insurance deductibles – Sewer backup is also not usually covered by a standard homeowners insurance policy. You would need a specific policy for sewer backup coverage, which would require a deductible to be paid before the insurance company covers the claim amount. 
  • Earthquake insurance deductibles – If you live in an area that is more prone to earthquakes, you may want to consider taking out an earthquake insurance policy. Deductibles for this type of policy are often percentage-based and can range from 2% to 20% of the replacement value of your home, depending on the risk level in your area.
  • Windstorm and hail deductibles – If you have a specific windstorm and hail insurance policy, a deductible will need to be paid before your policy kicks in, which is often percentage-based for this type of coverage.

How To Set Your Deductibles

The deductible you decide to go with should be based on what you can afford to pay on premiums, as well as what you’re comfortable spending to repair or replace damaged property out-of-pocket.

Generally speaking, deductibles of at least $1,000 are best, as higher deductibles reduce your premiums. But that doesn’t mean you should go with an extremely high deductible to pay rock-bottom premiums in hopes that a claim will never need to be filed. Keep in mind that the deductible amount you choose will affect any claims made for less than that amount.

Find out if insurance companies check your credit.

For instance, if you choose a $10,000 deductible, your premiums will likely be very low. However, you’d be limited to filing a claim to cover damages worth more than $10,000. Otherwise, it wouldn’t be worth filing a claim. So, if $5,000 worth of property was damaged or stolen, it wouldn’t make much sense to pay out a $10,000 deductible. In this case, you’d have to pay for these damages out of your own pocket.  

Learn how to remove a name from a property deed.

That said, if you’re comfortable covering the cost of damaged or stolen property worth less than $10,000, then choosing a very high deductible to pay much cheaper premiums might be worth it. 

At the end of the day, setting your deductible amount will be based on how much you can afford to pay out before your policy kicks in when filing a claim. The more you can afford to pay in the form of a deductible, the more you can save on your monthly premium payments. Higher deductibles equal lower premiums, while lower deductibles mean higher premiums. 

Are you a senior? Learn how you can defer your property taxes.

Final Thoughts

A deductible is part and parcel of a homeowners insurance policy, particularly when it comes time to file a claim. Be sure to assess your financial situation to make sure your premiums fit within your budget and your ability to pay out-of-pocket for damages that amount to less than what your deductible is. In many cases, filing a claim might not be worth it depending on the total in damages relative to your deductible.

Caitlin is one of Canada's leading personal finance writers. She is a graduate of Dawson College and Concordia University. She has been part of the Loans Canada team for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Industry Spotlight

What's happening with Canada's credit industry?

goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest

goPeer — Helping Consumers Achieve Financial Freedom by Connecting Canadians Looking For Financing With Canadians Looking to Invest

goPeer is Canada's first consumer peer to peer lending platform and connects creditworthy Canadians looking for a loan with everyday Canadians looking...

Read Post
Locator
Find The Best Rate
In Your Region
OR
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.