How Insurance Deductibles Work: Flat, Percentage and Hurricane Deductibles

The deductible looks like the simplest part of a policy and causes some of the biggest claim disputes, mostly because homeowners policies can carry more than one kind. This guide uses examples from state regulators.

Quick answer: A deductible is the amount of a loss you pay before the insurer pays. It can be a flat dollar amount or a percentage of the dwelling coverage, not of the claim. Some policies also have a separate wind, hail or hurricane deductible that applies instead of the general one.

The definition

The Texas Department of Insurance's home insurance shopping guide defines a deductible as the amount of a claim you must pay before the insurance starts paying. The Utah Insurance Department describes it as the dollar amount you pay out of pocket for each claim before the company begins paying. The NAIC uses the same idea in its explainer on actual cash value and replacement cost.

Flat vs. percentage deductibles

The Maryland Insurance Administration explains that some deductibles are a flat amount, such as $1,000, while others are a percentage of the insurance on the dwelling. It also notes that some policies include a special deductible for wind, hail, hurricanes or other storms, which may be applied instead of the general "all peril" deductible. Some insurers include it automatically and others offer options at different prices.

The Texas Office of Public Insurance Counsel stresses the key point about percentage deductibles: they are calculated on the amount of insurance on the home, not on the amount of the claim. Its example is a home insured for $200,000 with replacement cost coverage and a $7,000 hail loss:

Deductible	What you pay	What the insurer pays
1% ($2,000)	$2,000	$5,000
3% ($6,000)	$6,000	$1,000
5% ($10,000)	$7,000 (the whole loss)	$0

Maryland's advisory gives a parallel example. A windstorm causes $3,000 of damage to a roof on a home insured for $100,000. With a $1,000 wind deductible, the insurer pays $2,000. With a 2 percent hurricane deductible, the deductible is $2,000 and the insurer pays $1,000. With a 5 percent hurricane deductible, the deductible is more than the damage, so the insurer pays nothing.

Hurricane deductibles in Florida

Florida shows how specific these rules can get. The state's CFO page on the hurricane deductible says it is a separate deductible listed on the declarations page that applies to windstorm or hurricane losses. In summary:

• It starts when the National Hurricane Center issues a hurricane warning for any part of Florida and ends 72 hours after the last hurricane watch or warning is terminated.
• Insurers must offer $500, 2%, 5% and 10% options of the dwelling limit, with exceptions that depend on the dwelling's value (see Fla. Stat. 627.701).
• When a hurricane deductible applies, no other deductible under the policy may be applied.
• It applies on a calendar-year basis. If a second hurricane hits the same year, the deductible is the greater of the unmet balance of the first one or the policy's all other peril deductible, and once the first is fully met, the all other peril deductible applies to later hurricane claims that year.
• Example from the page: a $200,000 dwelling limit with a 2% deductible is a $4,000 deductible.

Other states have their own rules, so check yours.

What to check on a claim

1. Which deductible applies, which depends on the cause of loss as the declarations page describes it.
2. What the percentage applies to: the dwelling limit, not the loss.
3. Whether anything has already been satisfied this year.
4. The math, in writing, so the insured can follow it. Practice it in insurance exam math.

Try it on real exam questions

Every state's exam is different, and the best way to learn these calculations is to practice them. Take 20 free practice questions for your state, scored instantly with explanations: Alabama, Alaska, Arizona, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wyoming.

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Related reading

• Insurance Exam Math: The Formulas You Need, With Worked Examples
• Actual Cash Value vs. Replacement Cost: What Each One Pays
• The Coinsurance Clause Explained: The Penalty Formula, With Examples
• Named Perils vs. Open Perils (All-Risk): What's the Difference?