How Home Insurance Deductibles Work
What is a home insurance deductible?
A home insurance deductible is a set dollar amount that you agree to pay out of pocket any time you make a claim for property damage or theft.
A standard home insurance policy has a single deductible that applies to most covered losses. You may have a separate deductible for water damage claims, earthquake claims, or hail and windstorm claims.
How does a home insurance deductible work?
A home insurance deductible is a risk-sharing tool that insurance companies use to limit small claims and keep home insurance affordable. With deductibles, policyholders agree to pay a set portion of repair costs after any covered loss, while insurance companies agree to pay the remainder (up to policy limits) once the deductible is met.
When you file a home insurance claim for damage or loss to your home or personal property, you agree to pay your deductible.
- If your home insurance company pays the service provider directly (e.g., a contractor for home repairs), you may make a separate payment directly to the service provider to satisfy your deductible.
- If you receive a payout cheque from your insurance company, such as for a home burglary claim, your deductible amount will be deducted from the final payout.
Let’s say your home is damaged by a major fire. Your home insurance policy covers up to $500,000 to repair your home, up to $400,000 to replace your belongings, and up to $100,000 for additional living expenses (e.g., hotel rooms and meals) incurred when your home is uninhabitable during repairs. Your policy’s standard deductible is $2,000.
Your total expenses for the claim come out to:
- $250,000 for home repairs
- $80,000 to replace your personal property
- $2,000 for hotel rooms and meals
You pay:
- $2,000 (your full deductible amount)
Your insurance company pays:
- $248,000 for home repairs
- $80,000 to replace your personal property
- $2,000 for hotel rooms and meals
You only pay your deductible once for a covered loss.
What happens if the damage costs less than your deductible?
If the damage to your home costs less to repair than your home insurance deductible, you can’t file a claim for the damage, even if it’s covered under your policy terms.
Pro tip: When choosing a deductible, ask yourself, “What’s the highest amount I could realistically pay out of pocket (e.g., from emergency savings) if my home was damaged but not destroyed?”
What if I can’t afford my deductible?
If you can’t afford to pay your home insurance deductible, your insurer will not fulfil your claim.
Your home insurance coverage is contingent upon your agreement to pay your deductible in the event of a covered loss. If you’re not able to pay, the insurance provider isn’t obligated to fulfill their end of the bargain and cover the rest of the cost.
Pro tip: Always choose a deductible that’s an amount you could quickly come up with from emergency savings, rainy day funds, or other means.
Does it make sense to file a home insurance claim if it's close to your deductible?
If the amount of your home insurance claim is close to your deductible, there may be advantages to paying for the damage out of pocket rather than filing a claim.
Filing a claim entitles you to payment from the insurance company for part of your repair costs, but it could also impact your home insurance costs going forward. If you don’t have claim forgiveness or it’s not your first claim, your home insurance premium is likely to increase after any claim.
Pro tip: Weigh your expected out-of-pocket costs against the financial impact of a 10–20% increase in your home insurance premium next year.
Why deductibles matter for home insurance
Home insurance deductibles keep home insurance rates reasonable by preventing homeowners from filing small claims.
Homeowners insurance premium costs reflect insurers’ actual and expected operating costs, including claims costs. While claiming $500 for a minor home repair after a storm might seem small to you, if your insurance company has to finance five thousand $500 claims, that’s a loss of $250,000. Eliminating small claims shifts a small part of financial responsibility back onto homeowners, allowing insurance companies to keep premiums lower.
That’s why choosing a higher deductible will result in a lower premium for home insurance, while a low deductible can raise your premiums slightly.
Is it better to have a lower or higher home insurance deductible?
Low and high home insurance deductibles both come with advantages and disadvantages. A lower deductible makes it easier to file claims and grants you a larger payout in the event of a covered loss, but a higher deductible keeps home insurance more affordable.
The answer comes down to your priorities and budget.
- If your priority is maximizing coverage and making it easy to file a claim, choose the lowest deductible that keeps your premium within your budget.
- If your priority is reducing premiums and you’re willing to pay a little more when filing a claim, choose the highest deductible you could realistically expect to pay in the event of a covered loss.
The average home insurance deductible in Canada is $1,000, but standard options range from as low as $500 to as high as $5,000 or more. For most homeowners, a good deductible will fall in the $1,000–$2,500 range.
When a higher deductible may make sense
A higher deductible may make sense for budget-conscious shoppers willing to take on a larger portion of home repair costs after a disaster.
When a lower deductible may make sense
A lower homeowners insurance deductible may make sense for shoppers seeking to maximize their coverage and make it easier to file claims for home damage that isn’t catastrophic.
What are the different types of home insurance deductibles?
All home insurance policies have at least one deductible, often known as a standard deductible. Your standard home insurance deductible is a “flat deductible,” meaning that it’s a set dollar amount, and applies only to dwelling and contents coverage claims (i.e., claims for damage to your home or belongings).
- Personal liability insurance doesn’t have a deductible.
- Additional living expenses/loss of use coverage doesn’t have a deductible. Because this coverage is only triggered when you’re already making a claim for home damage, you’ll already be paying your deductible when you use this coverage.
Depending on your policy details, location, and coverage choices, you may also have one or more additional deductibles that apply only to certain claims. These include:
- Water damage deductibles: Usually set as a flat deductible, this deductible is separate from your standard policy deductible and is typically slightly higher than your standard deductible. It applies to water damage claims, including claims for sewer backup and overland flooding if you have those endorsements on your policy.
- Earthquake deductibles: If you have earthquake insurance, it likely comes with a separate deductible written as a percentage of your dwelling coverage limit. For example, if your dwelling coverage limit is $500,000 and your earthquake deductible is 5%, you’ll pay $25,000 on any covered earthquake claims.
- Wind and hail deductibles: In provinces subject to high windstorm and hail risk such as Alberta, you may see a separate percentage deductible for wind and hail claims.
How to choose a home insurance deductible
When you get home insurance quotes, you’ll need to select a deductible for your policy. You may also need to choose separate windstorm, earthquake, or flood insurance deductibles if your policy covers those perils.
When choosing a deductible, consider both the impact to your premium and how your deductible will affect the claims process. Ask yourself:
- How much do I have in emergency savings?
- What’s the highest amount I could realistically expect to pay to repair my home if it was destroyed?
- Do I want my home insurance to cover as much as possible, or only really big disasters?
- How flexible is my home insurance budget?
A licensed insurance advisor can help you review your finances, priorities, and coverage needs to select the deductible that makes the most sense in your situation. When you request home insurance quotes with PolicyMe, you’ll be able to review your coverage and deductibles with a licensed advisor before finalizing anything.
FAQ: Home insurance deductible
This article is for general information only and is not insurance or legal advice. Examples and any sample quotes or rate ranges are illustrative and do not constitute an offer or guarantee of coverage, price, or eligibility. Actual coverage, discounts, and premiums depend on your individual circumstances and the insurer provider; if there is any discrepancy, your policy and insurer documentation govern. For advice about your situation, speak with one of our licensed insurance professionals.