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When purchasing homeowner's insurance or renter's insurance, you should carefully consider the deductible, its relationship to the price of your insurance premiums, and how the deductible effects you if and when you have to file an insurance claim.

The deductible is the amount an insurance policyholder pays out of pocket after filing an insurance claim. The insurance company will pay everything in excess of the deductible, subject to policy limits. For example, if you have a $1,000 deductible and a $3,000 claim, you'll pay the $1,000 deductible and your insurance company will pay the remaining $2,000. If your claim is worth less than your deductible, it makes no sense to file a claim.

How Much of a Deductible?

When pricing homeowner's insurance, ask your insurance agent to give you quotes for several deductibles. You'll pay higher rates for policies with lower deductibles, and the premium rates will decrease as the deductible increases.

While you'll save money upfront if you buy a policy with a high deductible, it's important to remember that a higher deductible means you'll have to pay more out-of-pocket costs if you file a claim. When picking a deductible level, ask yourself how much of your own money you can reasonably afford to pay if you have a claim.

Percentage-Based Deductibles

In areas that have a higher risk for earthquakes, hurricanes and other types of wind damage, your insurance policy may have a separate deductible for damage caused by these types of events. These deductibles are often calculated as a percentage of the replacement cost of your home. For example, assume that your home suffers hurricane damage and is insured for $100,000. A 3% hurricane deductible means you'd pay the first $3,000 on a hurricane-related claim, and the insurance company would pay the balance of the cost of damage.

Hurricane deductibles and windstorm deductibles, which apply to damage caused by all types of wind, including hurricanes, generally range from 1% to 5% of a home's value, though the deductible may be as high as 25% in some high-risk areas. Earthquake insurance deductibles generally range between 2% and 20% of a home's cost.

Questions for Your Attorney

Information about your deductible should be clearly spelled out in your insurance policy. However, if you and your insurance company have a dispute over your deductible, you may want to hire a lawyer to help you negotiate with the insurer.

Consider asking your attorney the following questions:

• Do you have experience handling this type of situation?
• Do you charge a flat fee or hourly rate, and how much can I expect this to cost?
• What is your assessment of my situation?
• What is the likelihood of getting a resolution in my favor?

Related Resources on Lawyers.com^sm

- Homeowner's Insurance FAQ
- Insurance Coverage and Replacement Costs
- Insurance Coverage and Actual Cash Value
- What is My Claim Worth?
- Natural Disaster Insurance Claims
- Find an Insurance Lawyer in your area
- Visit our Insurance Claims message board for more help