How to choose your home insurance deductible in California

Short answer: Your deductible is the amount you pay toward a covered property claim before your insurer pays. A higher deductible lowers your premium, but only makes sense if you could comfortably pay that amount after a loss, and if the yearly savings are worth the extra risk. In California, you may have several deductibles at once: one on your homeowners policy (or separate ones on a FAIR Plan and a difference-in-conditions policy), a percentage deductible on earthquake coverage, and separate building and contents deductibles on flood insurance. Choose each one on purpose, not by default.

This guide is general information for California homeowners. Your policy declarations and wording control.

Step 1: Understand how deductibles work

• A deductible applies to property claims, like damage to your house or belongings. It usually doesn't apply to liability claims against you or to medical payments for guests.
• Most homeowners policies apply the deductible per occurrence. Two separate losses usually mean two deductibles.
• A flat deductible is a dollar amount, such as $1,000, $2,500 or $5,000.
• A percentage deductible is a percentage of a coverage limit. Earthquake policies in California use percentage deductibles.

Find your deductible on your declarations page. If you're not sure how to read it, see How to read a homeowners declarations page.

Step 2: Do the premium trade-off math

Ask your agent to quote the same policy at two or three deductibles. Then compare:

• Yearly savings from the higher deductible.
• Extra out-of-pocket cost if you have a claim (the difference between the two deductibles).
• Break-even years: extra cost divided by yearly savings.

Hypothetical example: if raising your deductible from $1,000 to $5,000 saved $400 a year, the extra $4,000 you'd pay on a claim would take ten claim-free years to recover. If it saved $900 a year, it would take less than five. The real numbers depend on your home and insurer; get actual quotes.

Step 3: Match the deductible to your savings

The most important test is simple: could you pay the deductible next week without hardship? If a $10,000 deductible would force you to borrow after a kitchen fire, it's too high, no matter what it saves. Many families choose a deductible equal to an amount they keep in an emergency fund.

Step 4: Think about small claims and your claims history

Insurers share claim information through databases such as CLUE, and past claims can affect your premiums and whether insurers will offer you coverage. See Your CLUE report and insurance claims history. A higher deductible naturally keeps small losses off your record because you pay them yourself. Some homeowners deliberately choose a higher deductible for that reason and keep home insurance for larger losses.

That said, always report a loss that could be large, involves injury or could lead to a lawsuit, even if you think it may be under the deductible. Late reporting can cause problems with coverage.

How the deductible is applied in a real claim

Here's how it usually works on a homeowners claim, using hypothetical numbers:

1. A pipe bursts and causes $18,000 of covered damage to floors and drywall, plus $3,000 of damaged belongings.
2. The adjuster adds up the covered damage for that one occurrence: $21,000.
3. Your $2,500 deductible is subtracted once: the insurer pays $18,500, subject to the policy's limits and terms.
4. If the policy pays replacement cost with a holdback, the insurer may first pay actual cash value, then the rest after repairs are done.

A few points that surprise people:

• One deductible per occurrence usually applies across dwelling, other structures and personal property in the same loss.
• Additional living expenses may or may not be subject to the deductible; ask how your policy handles it.
• A loss just over the deductible may still be worth reporting, but think about your claims history and talk to your agent first.
• Be wary of a contractor who offers to "cover" your deductible. If they do it by inflating the estimate sent to the insurer, that can be insurance fraud.

Step 5: Check lender requirements

If you have a mortgage, your loan documents may set a maximum deductible. Before raising it, check with your lender or loan servicer. If you're buying a home, ask your loan officer during escrow.

Step 6: FAIR Plan and difference-in-conditions deductibles

If you have the California FAIR Plan plus a difference-in-conditions (DIC) policy, you'll have two policies, each with its own deductible. After a fire, the FAIR Plan deductible applies to the fire damage it covers; a water or theft loss would go to the DIC policy and its deductible. Ask your agent how the two deductibles interact for losses that involve both. See FAIR Plan difference in conditions.

Step 7: Earthquake deductibles are percentages

Earthquake deductibles are a percentage of the coverage limit, not of the damage. According to the California Earthquake Authority, CEA homeowners policies offer dwelling deductibles of 5%, 10%, 15%, 20% or 25%. Homes with a dwelling limit over $1,000,000, and homes built before 1980 on a raised or other type of foundation without a verified retrofit, are eligible only for 15%, 20% or 25%. CEA's loss of use coverage has no deductible, and the first $1,500 of emergency repairs has no deductible.

Hypothetical example: with a $600,000 dwelling limit and a 15% deductible, you'd pay the first $90,000 of covered dwelling damage. A 5% deductible would be $30,000.

A retrofit can widen your choices and may qualify you for a CEA premium discount. See Earthquake insurance in Los Angeles: is it worth it?

Step 8: Flood deductibles are separate

NFIP flood policies have separate building and contents coverages, each with its own deductible. A flood that damages both may mean paying two deductibles. Higher deductibles lower the premium. Private flood policies set their own deductible options. See the flood insurance guide for LA homeowners.

Step 9: Condo and renters deductibles

• Condo owners: your HO-6 deductible applies to your unit. If the HOA's master policy has a large deductible, your association may pass part of it to owners through a special assessment. Loss assessment coverage on your HO-6 can help. See the condo and HO-6 guide.
• Renters: renters deductibles are usually small. Choose one you can pay easily. See the renters insurance guide for LA renters.

Step 10: Scheduled valuables often have no deductible

Jewelry, watches, art and other items scheduled on a valuables floater often have no deductible, or a small one. If you own valuable items, scheduling them can be better than relying on the home policy. See How to insure jewelry, art and collectibles.

Step 11: Review deductibles every year

Your savings, home value and insurer pricing change. At each renewal, ask:

• Did my deductible change at renewal?
• What would a higher or lower deductible cost?
• Has my emergency fund changed?
• Have I added earthquake or flood coverage with its own deductible?

A simple decision checklist

Questions to ask your agent

• What would my premium be at $1,000, $2,500 and $5,000 deductibles?
• Is the deductible per occurrence?
• How do my FAIR Plan and DIC deductibles work together?
• What earthquake deductible options are available for my home?
• Does my lender limit my deductible?
• Do my scheduled valuables have a deductible?

Key terms

• Deductible: Your share of a covered property loss.
• Flat deductible: A fixed dollar amount.
• Percentage deductible: A percentage of the coverage limit.
• Per occurrence: One deductible for each separate loss.
• CLUE: A claims history database insurers use.

Common mistakes

• Choosing a deductible you couldn't afford after a loss.
• Not checking what the higher deductible actually saves.
• Forgetting that earthquake deductibles are based on the limit, not the damage.
• Not knowing you have two deductibles with FAIR Plan plus DIC.
• Raising the deductible without checking lender rules.

Frequently asked questions

Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only. Not legal, tax or financial advice, and not a coverage determination. Coverage depends on policy language and underwriting.