What Texas Homeowners Should Know About Their Home Insurance Deductibles

Texas Home Insurance Deductibles Explained: What Homeowners Need to Know

You know you have a homeowners insurance deductible, but do you know how much it actually is?

For Texas homeowners, the answer is not always as simple as “$1,000.”

Your policy might have more than one deductible. One could be shown as a dollar amount, while another could be a percentage. You may also have a different deductible for wind and hail than you have for other types of covered losses. TDI notes that home policies can have different deductibles depending on the type of coverage or loss. Texas Department of Insurance

That can become especially important in Texas, where hailstorms, high winds, and severe thunderstorms are a fact of life.

Let’s break down how homeowners insurance deductibles work and, more importantly, what those numbers could mean for your wallet when you have a claim.

What Is a Homeowners Insurance Deductible?

A deductible is the portion of a covered claim that you are responsible for before your insurance company pays its portion, subject to the terms of your policy.

Unlike many health insurance deductibles that operate on an annual basis, a homeowners insurance deductible generally applies to each claim.

Here’s a simple example.

Suppose you have a covered loss with $10,000 in damage and a $2,000 deductible.

If the claim is otherwise covered for the full $10,000, the $2,000 deductible would be subtracted, leaving $8,000 for the insurance company to pay.

But homeowners deductibles are not always fixed dollar amounts and that’s where things can get confusing.

What Is a Percentage Deductible?

Some homeowners insurance deductibles are expressed as a percentage rather than a dollar amount.

The important thing to understand is what that percentage is based on.

A percentage deductible is typically calculated using the coverage limit shown on your policy, not as a percentage of the amount of your claim.

For example, suppose your home has $400,000 of dwelling coverage and the applicable deductible is 2%.

2% of $400,000 = $8,000

That means the deductible would be $8,000 for a covered loss to which that deductible applies…it does not mean you pay 2% of the repair bill.

TDI specifically recommends converting percentage deductibles into dollar amounts so you understand what you would actually have to pay after a loss. Texas Department of Insurance

This is one of the most important numbers to look at when comparing homeowners insurance policies.

You May Have More Than One Deductible

Don’t assume the deductible you see first is the deductible that applies to every claim because a Texas homeowners policy may have separate deductibles for different types of losses, like one for wind and hail and another for other kinds of losses.

Your declarations page should show the deductibles that apply to your policy. TDI recommends reviewing this page because homeowners may have separate deductibles for wind and hail and for other types of losses. Texas Department of Insurance

Not sure how to read your homeowners policy? Learn more in our Texas Home Insurance 101 series: 

• The Basics of Property Coverage Part 1

• The Basics of Property Coverage Part 2

• The Basics of Property Coverage Part 3

Why Wind and Hail Deductibles Matter in Texas

If you live in North Texas, you probably don’t need us to explain that hail happens here.

What you do need to know is which deductible would apply if hail damages your home.

TDI advises homeowners to ask whether their wind and hail deductible is different from the deductible for other types of damage. If it is higher, that can leave you responsible for more of the repair cost after a storm. Texas Department of Insurance

Let’s go back to our $400,000 home. Suppose the policy has:

$2,500 deductible for certain other covered losses and a 2% wind and hail deductible

The 2% wind and hail deductible would equal $8,000.

If a hailstorm causes covered roof damage and the wind and hail deductible applies, the homeowner would be responsible for that $8,000 deductible rather than the $2,500 deductible.

That’s a pretty big difference and it is something you want to understand before the hailstorm arrives.

Does a Higher Deductible Lower Your Home Insurance Premium?

Generally, choosing a higher deductible can lower the cost of your homeowners insurance, but there is a tradeoff. When you chose a higher deductible, you are agreeing to take on more of the financial responsibility if you have a claim.

TDI advises consumers to consider how much they could realistically afford to pay if their property were damaged when choosing a deductible. Texas Department of Insurance

A higher deductible might make the premium look more attractive, but ask yourself a practical question:

Could I comfortably come up with that deductible after a major storm?

If your answer is no, the premium savings may not be worth taking on the additional out-of-pocket exposure.

Your Deductible Is Not Always Your Total Out-of-Pocket Cost

This is where homeowners insurance can get more complicated.

It’s tempting to think that if you have an $8,000 deductible, $8,000 is the most you would have to contribute toward a covered repair, but that isn’t necessarily the case.

How the damaged property is covered can also affect the amount your insurance company pays.

Two terms that are especially important are Replacement cost and Actual cash value.

Replacement Cost vs. Actual Cash Value

Replacement cost coverage generally pays based on the cost to repair or replace covered property at current prices, subject to your policy’s terms, limits, deductible, and other provisions.

Actual cash value, commonly called ACV, takes depreciation into account. Depreciation reflects factors such as age and wear.

That distinction can make a substantial difference after a claim. Texas Department of Insurance

Roofs are a good example.

Suppose a covered hailstorm damages an older roof. Replacing the roof costs $20,000.

If the applicable deductible is $5,000, it would be easy to assume:

$20,000 repair cost – $5,000 deductible = $15,000 insurance payment

But that calculation may not tell the whole story.

If the roof is covered on an Actual Cash Value basis, depreciation may also be deducted when determining the covered amount. Depending on the age and condition of the roof and the terms of the policy, the homeowner’s out-of-pocket expense could therefore be more than the deductible.

TDI illustrates this same concept in its consumer guidance. In TDI’s example, the same damaged roof produces very different claim payments depending on whether it has replacement cost or actual cash value coverage. Texas Department of Insurance

Even Replacement Cost Claims Can Involve Depreciation at First

Here is another part that sometimes surprises homeowners.

Having replacement cost coverage does not necessarily mean the insurance company writes one check for the entire replacement cost immediately.

TDI explains that with replacement cost coverage, an insurer may initially issue a payment based on the Actual cash value of the damaged property, which reflects depreciation. The remaining recoverable depreciation is generally paid after the property is repaired or replaced and the insurer receives the required documentation, subject to the policy’s terms and deadlines. Texas Department of Insurance

That’s one reason it is important to understand both your deductible and how your policy settles a loss.

Pay Special Attention to Your Roof Coverage

For Texas homeowners, we think roof coverage deserves a closer look at renewal. Don’t assume that because your roof had Replacement cost coverage when you bought the policy, it will always be covered the same way.

It has become more common in recent years for insurance companies to change an aging roof from Replacement cost coverage to Actual cash value coverage when it reaches a certain age. A roof in poor condition might also have limited or no coverage, depending on the policy and insurer. Texas Department of Insurance

When reviewing your policy, consider asking:

Is my roof covered at replacement cost or actual cash value?

Has my roof coverage changed since last year?

What deductible applies to wind and hail?

What is that deductible in actual dollars?

Those questions can tell you much more than looking at the premium alone.

Don’t Compare Home Insurance Based on Premium Alone

Imagine you’re comparing two homeowners insurance quotes.

One costs less per year. Sounds like the winner, right?

Not necessarily.

One policy might have a 1% wind and hail deductible while another has a 2% deductible. One might provide Replacement cost coverage for the roof while another provides Actual cash value coverage. There can also be differences in coverage limits, endorsements, exclusions, and other policy provisions.

Those differences may not stand out when you’re looking only at the annual premium and that’s why we believe a good homeowners insurance comparison should answer two questions:

What am I paying? AND  What am I getting for that price?

Review Your Deductibles Before You Need Them

You don’t want the first time you calculate your wind and hail deductible to be while you’re standing in the yard looking at shingles on the ground.

Take a few minutes to review your homeowners insurance declarations page.

Look at your dwelling coverage amount.

Look at each deductible.

If a deductible is expressed as a percentage, calculate what that percentage equals in dollars.

Then look at how your home and roof are covered, including whether replacement cost or actual cash value applies.

If something doesn’t make sense, ask. That’s what your insurance agent is there for.

Let Neighbor’s Choice Review Your Texas Home Insurance

At Neighbor’s Choice Insurance Agency, we’re an independent insurance agency located in Grapevine, Texas.

We work with multiple insurance companies, which allows us to compare options among the carriers we represent.

If you’re not sure what your homeowners deductible actually means, how your roof is covered, or whether it’s time to compare your current policy with other options, we’d be happy to take a look.

Request a Texas Home Insurance Quote: