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Robbie Hoye

By: Robbie Hoye on April 7th, 2025

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How Do Insurance Deductibles Work?

Personal Auto | Individuals & Families | Home Insurance

Unless you’re an insurance expert, deciphering every area of your insurance policy can be difficult. Even something as important as deductibles can seem confusing - whether it’s for your homeowners or car insurance policy. 

Every day, our team at Berry Insurance helps clients tackle the questions plaguing them about their insurance policies - so they can feel confident knowing exactly how they’re covered. 

If you’re wondering what deductibles are or need a refresher on how they impact your policy, keep reading to learn all about how home and car insurance deductibles are handled, available deductible amounts, and how your deductible impacts your premium. 

What are insurance deductibles? 

A deductible is the agreed amount that the policyholder is responsible for paying before the insurance carrier pays them any money to handle a claim. 

Deductible amounts are set when the policy is signed and can differ between policy types (home, auto, etc.) as well as coverage types (such as collision and comprehensive coverage on auto policies). 

With so many terms and acronyms to keep track of, insurance can get a bit confusing. Refer back to our handy glossary of insurance terms anytime you need a reminder of what a specific term or coverage means: Glossary of Insurance Terms and Definitions.

How do homeowners insurance deductibles work? 

Deductibles for home insurance come into play after you file a claim for damages from a covered peril to your property. 

When it comes to homeowners insurance policies, there are typically two methods used calculate them: 

  • Fixed dollar amount/flat rate deductible: 

This type of homeowners deductible is offered at different set rates, typically in amounts of $500, $1,000, and $2,500 - with $1,000 being the most common amongst homeowners. 

Once you choose your rate, it will be the fixed dollar amount that you must pay towards the cost of repairs after filing a claim on your policy. So, if the repairs to your home after suffering a claim cost $5,000 and your deductible is set at $1,000, your homeowners insurance policy would cover the remaining $4,000 of the bill once you’ve paid your deductible. 

  • Percentage-based deductibles:

Instead of flat rate deductibles, percentage-based are instead calculated based on a percentage of the insured value of your home. 

Percentage deductibles will usually range from 1-10% of your home’s insured value.  So for example, let’s say your home is insured for $200,000, and your policy has a 3% deductible, you would be responsible to pay $6,000 toward the cost of repairs after filing a claim. 

Percentage-based deductibles may be required by insurers with a higher risk of experiencing damages from wind, storms, hurricanes, or earthquakes - but this will vary between insurance providers and property location. 

Sometimes home insurance policies will also have specific peril deductibles separate from the standard deductible. For example, if a home insurance policy had a $1,000 deductible, they could also have a 2% Named Storm deductible, or a 5% Earthquake deductible. So depending on what type of loss happens, the insured may have to pay different deductible amounts. 

How are homeowners deductibles paid? 

Your homeowners insurance deductible would be subtracted from the settlement amount that you would receive from your insurance provider to cover the damage costs from a claim you suffered. 

How high should I set my homeowners deductible?

This will come down to what your policy options are and what you’re willing to pay in the event of a claim. 

Setting a higher deductible can actually help to lower your policy’s insurance premium. While it requires you to pay more out-of-pocket after experiencing a claim, it may be a good way to save money on your policy. 

Additionally, some perils may have their own separate deductibles to cover that specific loss, such as wind deductibles. To learn more about this specialized type of deductible and if you need it on your policy, read this guide: Everything You Need to Know About Wind Deductibles.

How do auto insurance deductibles work? 

Just like homeowners insurance, your car insurance deductible will be the amount you pay towards the cost of repairs out-of-pocket after you file a claim with your auto insurance provider. 

While auto insurance deductibles will vary between states, common amounts are $500 and $1,000. So if damages to your vehicle resulted in $4,000 in repairs, and you have a deductible of $500 on your policy, your insurance provider would pay for the remaining $3,500. 

In the event that the damages to your vehicle resulted in repairs that cost less than your deductible amount, insurance coverage would not apply and you would need to cover the cost. 

Available deductible amounts will depend on the type of coverage - as collision and comprehensive coverage have separate deductibles entirely and differ in the amounts available. Typically comprehensive coverage offered is lower than those available for collision. In the event of a claim, you would pay separate deductibles for each incident.

Additionally, if you are not-at-fault in an accident, and can identify the other at-fault party, your collision deductible would be waived - as long as you have a waiver of deductible on your policy. 

How are auto insurance deductibles paid? 

Once repairs are made to your vehicle, you will pay the deductible amount to the mechanic and then your insurance provider pays the remaining cost on your behalf. 

How high should I set my auto insurance deductible? 

Setting your deductible higher will ensure you pay less for your premium overall, so you’ll be paying less per month for your policy - but would pay more if you get in an accident. If you’re comfortable with this, then having a higher deductible is a good way to save some money on your premium.

Insured with confidence 

While insurance policies can be confusing to anyone, you now know more about deductibles and feel confident understanding your insurance policies. 

If you’re currently wondering what to set your deductibles at, you may be in the middle of purchasing a new insurance policy. For our guide on how to buy car insurance and tips you should know, check this article out: How to Buy Car Insurance (Step-by-Step Process).

If you’re instead looking to insure your home, get the lowdown on what to expect from your insurance coverage, here: What to Expect from Home Insurance When Buying a House.