$50K out of Pocket: Homeowners Can’t Afford To Overlook Percentage-Based Deductibles

Frank and Lisa never expected their homeowners insurance deductible to be more than the price of a car. When a Category 3 hurricane passed, their home was still standing — but barely. Storm surge flooded the first floor, the roof was damaged, and windows were shattered. Even though the covered wind damage totaled about $80,000, they received just $30,000 from the insurance company for their covered loss.

They were responsible for the remaining $50,000; Frank and Lisa had a five percent wind deductible on their policy. Percentage-based deductibles require you to pay a set percentage of your structure’s policy limit or the total insured value — in this case five percent of $1 million.

When they thought about deductibles, Frank and Lisa pictured the flat amount they had for their home and auto — $500, $1,000, maybe $2,500 — paid out of pocket before the insurer covered a loss. But their wind deductible wasn’t a flat deductible; it was percentage-based. When their agent offered the opportunity to lower their premiums by taking on a higher percentage deductible, they took it. After all, five percent sounds like a minimal figure. They didn’t realize how much they would owe out of pocket under the new deductible.

Percentage-based deductibles are more common than you might think. Some losses, like hurricanes, windstorms and earthquakes, can all trigger this kind of deductible. For some homeowners, that percentage can mean paying tens or even hundreds of thousands of dollars out of pocket.

Special deductibles for specific perils

Standard policies typically have one deductible that applies to most covered losses, like theft. But in higher-risk areas — such as coastal zones or regions prone to wildfires — insurers may assign separate deductibles for certain perils.

Common examples of separate deductibles include:

• Hurricane: Applies only when a storm meets your state or policy’s definition of a hurricane and causes covered damage.
• Named storm: Triggers when the National Weather Service names a storm, regardless of whether it reaches hurricane strength.
• Windstorm: Applies to wind-related damage, which may include tornadoes or severe thunderstorms as well as tropical systems.
• Wildfire: Applies when the damage results from a wildfire rather than another type of fire. Policy definitions matter — wildfires and accidental fires can be caused in similar ways, such as lightning or electrical sparks.
• Earthquake or volcanic eruption: Applies to all seismic activity, including aftershocks, or to volcanic eruptions. Typically written as a percentage of the insured value.

Special deductibles can be a higher flat amount (sometimes called straight), meaning a fixed dollar amount that applies to a covered loss. These may carry a larger premium. Or, they can range from one percent to 20 percent of the policy limit, depending on your location, your insurer’s guidelines and state regulations.

Why even have deductibles?

A deductible is a form of risk-sharing between you and your carrier, designed to:

• Eliminate small claims that are costly to handle and process
• Incentivize homeowners to guard against risk
• Help keep insurance available and affordable 

Generally, the larger the deductible, the lower the premium.

Despite common misconceptions, special deductibles, like wind/hail deductibles, aren’t just a way for insurers to pay less on covered claims. By taking on a larger share of the loss, policyholders in high-risk areas lower the insurer’s exposure, which can mean lower rates for you and fewer insurer insolvencies for insurers after major disasters. That stability benefits everyone, especially in 2025 when four of the five costliest global loss events have happened in the U.S., totaling at least $126 billion in damage, according to Aon.

The deductible amount is set by the terms of your policy and appears on the declarations (or front) page. If you’re reviewing your policy, the conditions section will explain when the deductible will be taken from a claim payment. These details are often listed under a subheading such as “loss payable” or “loss settlement.”

Depending on the policy, a percentage-based deductible is usually applied to the policy limits of the structure or to the total insured value, which may include other covered property such as the garage, shed or your contents. This is especially important to understand for homeowners who also insure commercial buildings, rental properties or other non-residential risks.

Understanding when a deductible applies is important — but so is knowing how it applies. Two lines of coverage may be affected, but only one deductible will apply to a claim. For example, say a homeowner named Phil had a $500,000 homeowners policy with a five percent wind/hail deductible and a $1,000 other perils deductible. A tornado damaged his roof, which allowed rain to create water damage to his contents. Phil paid $25,000 out of pocket before insurance covered the damage to his home, but he did not have to pay the $1,000 deductible for his contents loss. Most policies apply the highest deductible to the entire claim, but your policy will specify how it works.

State insurance regulations dictate how deductibles must be written into policy language and how they are applied. These rules vary by state.

Why deductibles can be confusing

Despite seemingly clear names, confusion can occur when insurers determine how special deductibles apply. I handled several claims for both Tropical Storm Sandy and Hurricane Sandy, before New York’s Department of Financial Services (DFS) clarified what constituted a windstorm.

A windstorm can refer to any strong wind event. A named storm is one officially designated by the National Weather Service. Hurricanes, however, are named by the World Meteorological Organization. This distinction matters because meteorologists may refer to a windstorm by name — but if state regulations or the policy require a specific agency to name the storm or set deductible boundaries, a different deductible could apply. That can leave you unprepared for how much you’ll owe after a major event.

DFS has since amended its hurricane deductible rules to specify that the National Weather Service must set the boundaries for windstorm deductibles. Because meteorologists nationwide were referring to Sandy by name at the time, I applied the named windstorm deductible. Many policyholders were upset when the higher deductible was applied. This change shows that rules — and the way deductibles are triggered — are not static.

Deductibles matter — even if you’re inland

Special deductibles aren’t limited to windstorms or coastal states. Percentage deductibles also appear in earthquake coverage, hail coverage in parts of the Midwest and wildfire-prone areas. In each case, the deductible amount — whether a percentage or a higher flat dollar figure — can significantly reduce your claim payout.

A special deductible can be tens of thousands of dollars. Here’s what to keep in mind:

• For many households, that means savings need to be far greater than the typical “three-to-six months’ salary” emergency fund.
• Deductibles and coverage terms can change at renewal. Always check your declarations page each year to see if the deductible amount or peril coverage has been revised.
• Some policies may add new deductibles for emerging risks — like wildfire or wind/hail — as insurers adjust for local conditions. Knowing these changes ahead of time gives you the chance to plan financially or shop for a policy that better matches your needs.