Insurance Deductibles: How They Work and How to Choose

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You have two insurance quotes open on the kitchen table. One premium looks easier on the budget. Then you notice the deductible, and the decision feels less simple.

That pause is worth taking. A deductible is money you may need to come up with when something has already gone wrong. Choosing one is easier when you understand both the everyday cost of the policy and the part of a covered loss you would handle yourself.

David Olson at Intrinsic Insurance can help you compare those trade-offs in plain language. Here are four things to check before you choose, with a focus on home and auto insurance.

1. Find the deductible for the coverage you are actually comparing

The premium is what you pay to keep insurance in place. The deductible is your share of a covered loss or covered expense, as defined by the policy. They are different costs. ^{1, 6}

Start with the declarations page, then read the relevant policy terms and endorsements. Do not assume one deductible applies to everything:

• Home insurance: Check the property deductible and any different deductible for wind, hail or other specified losses.
• Auto insurance: Look at collision and comprehensive separately. Collision generally addresses damage from hitting another vehicle or object; comprehensive generally addresses other covered causes, such as theft or hail. Ask which deductible applies to each coverage you carry. ²
• Health insurance: Do not carry home-insurance assumptions into a health plan. Health deductibles usually follow a plan-year structure, and copays or coinsurance may still apply. The Summary of Benefits and Coverage is a useful starting point. ³

Your next decision: Write down the deductible beside each relevant coverage. If a quote only shows one number, ask what other deductibles or exceptions apply.

2. Turn a percentage deductible into a dollar amount

A percentage can look small until you know what it is a percentage of.

For homeowners insurance, a percentage deductible is commonly tied to the home’s insured value, not the repair bill. Ask your insurer to identify the applicable value and show you the actual dollar amount. Recheck that amount if the insured value changes. ⁵

This matters in Minnesota because some homeowners policies have a separate, higher wind or hail deductible. Minnesota Commerce advises homeowners to weigh potential premium savings against the amount they could need to pay for storm repairs. A policy may use a flat-dollar deductible or a percentage for these losses. ⁴

Your next decision: Compare dollar amounts, not a percentage on one quote and a dollar figure on another. Confirm which events trigger each deductible before choosing.

3. Compare the premium difference with money you could actually use

A higher deductible may reduce the premium. The trade-off is taking on more of a covered loss yourself. There is no single deductible that fits every household. ⁵

Ask for quotes that keep the coverage limits and other terms the same while changing the deductible. Compare premiums over the same policy term. Then ask yourself:

• Could I pay this deductible without missing an essential bill?
• Would I have the money available soon enough to handle a repair?
• How much premium would I actually save in exchange for the higher amount?

Do not treat a possible future discount or a general savings claim as your answer. Use the actual quoted difference and your own cash cushion. NAIC’s consumer guidance emphasizes making sure you can afford the deductible if you have a loss. ^{1, 6}

Your next decision: Choose the trade-off you can manage, not simply the quote with the smallest premium.

4. Read the coverage beyond the deductible

A manageable deductible is important, but it cannot tell you everything about a policy.

For home insurance, check whether damaged property is valued using actual cash value or replacement cost. Actual cash value takes depreciation into account. Replacement-cost coverage addresses repair or replacement with comparable materials, but policy limits and settlement conditions still matter. Some policies require repair or replacement before additional payment is released. ^{7, 8}

Also compare exclusions, coverage limits and endorsements. A lower deductible does not add coverage for a loss the policy excludes. And the deductible is not a promise that it is the most you could ever pay after a loss.

Your next decision: Before accepting a quote, ask the insurer to explain both the deductible and any other terms that could affect your out-of-pocket cost.

Four common mistakes to avoid

• Choosing by premium alone. Compare what you pay for the policy with what you could owe after a covered loss.
• Reading a percentage as a percentage of the repair bill. Confirm the calculation and get the dollar amount.
• Assuming one deductible applies everywhere. Review each coverage and any separate wind or hail provision.
• Picking an amount that would strain your household. A lower premium is less helpful if the deductible makes a necessary repair difficult to manage.

You do not need to predict the next storm or accident to make a thoughtful choice. You need clear terms, comparable quotes and an amount you understand.

If you would like a second set of eyes on the options, request a quote from Intrinsic Insurance. Tell David which coverage you are comparing and what you would like explained. Ask about a secure way to share policy documents.

Frequently asked questions

What is an insurance deductible?

A deductible is the portion of a covered loss or covered expense that you are responsible for under the policy. How it applies depends on the coverage. Paying a premium does not eliminate a deductible, and meeting a deductible does not make an excluded loss covered.

Source: 1, 3.

Is a percentage deductible based on my repair bill?

For homeowners insurance, a percentage deductible is commonly based on the home’s insured value, not the amount of the repair bill. Ask the insurer which value the policy uses, how the percentage is applied and what the resulting dollar amount is.

Source: 5, 6.

Will a higher deductible always save me money?

A higher deductible may reduce the premium, but it also increases what you retain if a covered loss occurs. Compare actual quotes with otherwise matching coverage. Whether it reduces your total costs depends on the premium difference and any losses you experience.

Source: 1, 5.

Are home insurance deductibles annual like health insurance deductibles?

Home insurance property deductibles generally apply to each covered claim rather than accumulating toward an annual amount. Health-plan deductibles usually follow a plan-year structure and can have different rules. Check the policy or plan documents instead of assuming they work the same way.

Source: 1, 3.

Is my deductible the most I could pay after a loss?

No. A home or auto deductible is not an overall out-of-pocket cap. Exclusions, coverage limits and claim-valuation provisions can leave additional costs for you to pay. Review those terms along with the deductible before choosing a policy.

Source: 7, 8.

This article provides general information, not a coverage determination. Coverage depends on the policy’s terms, limits, deductibles and exclusions. Availability and eligibility are subject to underwriting.

Sources

Sources checked October 23, 2026. Publication dates are shown where available.

1. NAIC, A Consumer’s Guide to Home Insurance. Copyright 2022; see the section on deductibles.
2. Minnesota Department of Commerce, Shopping for Auto Insurance. No publication or update date displayed.
3. NAIC, Understand Your Health Plan’s Deductible. Published October 5, 2020.
4. Minnesota Department of Commerce, Consumer alert: Check insurance coverage for wind, hail limits. Published August 15, 2022.
5. NAIC, Searching for a Homeowners Insurance Policy? Tips to Get the Most Value. Published January 27, 2020.
6. NAIC, Why Are My Insurance Premiums Increasing?. Published November 19, 2024.
7. NAIC, What’s the Difference Between Actual Cash Value Coverage and Replacement Cost Coverage?. Published January 2, 2025.
8. NAIC, A Shopping Tool for Homeowners Insurance. Copyright 2023; see coverage comparisons and claim-payment conditions.

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