Dollar Deductibles vs. Percentage Deductibles

Understanding the difference between dollar deductibles and percentage deductibles can be important in determining which home insurance quote is the right one for you.

After getting free home insurance quotes, doing the research to discover exactly what the terms are of each policy can be a daunting task for a first time home buyer. There are many different terms being used and options that are available - each one impacting not only the cost of the policy but what might be covered. Understanding the basic parts of a policy can make shopping for insurance for a home a much easier prospect for the novice.

One of the issues that cause the most confusion for people looking for home insurance online is with deductibles. Most people know that deductibles are the minimum amount that a policyholder has to pay before their insurance coverage kicks in. The most common usage of this is with medical insurance policies - people who are covered typically have to pay a deductible or co-pay while the insurance will handle the rest.

Deductibles for homeowners insurance works in much the same way. If you file a claim for a property loss, the insurance company will typically cover your losses after you pay a deductible. However, things can get confusing because many insurance companies will have both dollar deductibles and percentage deductibles applied to different portions of a policy.

A dollar deductible sets a flat rate for the deductible that must be met before the insurance begins paying out damages. For example, a $1,000 deductible on earthquake damage would mean that the insured party would have to pay $1,000 out of pocket before the insurance company begins to pay damages.

Meanwhile, a percentage deductible means that the insured party is responsible for a certain percent of the overall value of their house. So if the percentage deductible of a claim on a $500,000 house was two percent, this would mean that the home owner is responsible for the first $10,000 of a claim, with the insurance company picking up the rest of the costs.

As you can tell, this could mean a big difference in what you pay out of pocket for damages. Different policies will have different deductible limits and types for different claims, so it's important to research the offers you get after receiving home insurance quotes in order to make sure you understand the different deductible rates and limits.

Lou Albini is a freelance writer specializing in financial services and insurance. His work has been published in major print and online news sites. He lives in Brooklyn, NY.