A homeowners insurance deductible is the amount you are willing to pay in the event of a loss to your home. It is a means for a client to share in the initial cost of a claim and defines the line between what repairs are your responsibility versus those of the insurance company. A deductible also provides a monetary incentive to properly maintain and protect your property from damage. Thus, the higher the deductible, the lower your insurance premiums.
Standard Homeowners Insurance Deductible
Policies will list a standard homeowners insurance deductible, often termed the All Other Perils (AOP) deductible. The most common AOP deductibles are $1,000, $2,500, and $5,000, though significantly larger ones are available for high-value homes or high-risk environments.
Many policies stipulate a separate deductible for damage by wind. These deductibles are larger than the standard AOP deductible. Since wind is the most common homeowners insurance claim, it is no wonder insurance companies handle this exposure carefully. Understand the wind and any other special deductibles on your policy and when they apply. Common wind-related deductibles include:
If your home is located near the coast or in an area where damaging winds are a common threat, your policy will likely state a separate, higher deductible for this peril. Wind deductibles can be a specific amount, such as $10,000, or expressed as a percentage of the property coverage, such as 2%. To calculate the amount of a percentage deductible, take the insured amount of the home and multiply it by the deductible. For example, if you insure your home for $200,000 and your wind deductible is 2%, that equates to $4,000 ($200,000 x 2% = $4,000). Wind deductibles vary between 1% and 10%.
Instead of a simple wind deductible, certain policies stipulate a separate homeowners insurance deductible for damage due to wind or hail. Note that this kind of deductible is not as advantageous since it applies when damage is cause by wind or hail and not just wind alone.
If your policy specifies a named-storm deductible, this deductible applies if the storm that causes the damage is numbered/named by the U.S. National Weather Service, the U.S. National Hurricane Center, or the U.S. National Oceanic and Atmosphere Administration. For example, hurricane Irene or tropical storm David. Unlike wind/hail, a named storm deductible is better than a wind deductible because it only applies for larger, named-storm events.
A hurricane deductible is one of the best wind-related deductibles since it only applies when your home is damaged by a hurricane. Most policies require the storm be categorized as a hurricane by the National Weather Service or U.S. National Hurricane Center.
Choosing a Deductible
Policies exist to protect your home, but claims affect future premiums. When choosing a homeowners insurance deductible, ask yourself, “What amount am I willing to pay for repairs before I file a claim?” If your answer is $2,500, there is no reason to have a $1,000 deductible. In such a situation, increase your deductible and start saving money. However, it does no good to set a deductible so high you cannot pay it. Ask your insurance agent for homeowners insurance prices for different deductible options. The proper deductible is a balance that only the client can determine.
Bankers Insurance LLC