Get the most from your homeowners insurance policy. Choosing a deductible is an important step toward that goal. And since this decision affects your yearly premium and other out-of-pocket expenses, give it careful consideration. Choose a deductible that makes your policy work for you.
What is a Home Insurance Deductible?
A deductible is the amount of money you pay from your own pocket toward damages to your home before insurance kicks in. It is a means to balance the risk between you and your insurance company. The higher the deductible, the more risk you are assuming, therefore the lower your insurance premiums. Conversely, the lower the deductible, the more risk the insurance company is assuming, therefore the higher your premiums.
A deductible is not paid to the insurance company. The deductible is simply taken out of claim payments. For example, if your policy has a $500 deductible and you file a claim for a broken pipe that caused $10,000 in water damage, the insurance company would pay you $9,500.
How to Choose a Deductible
Your best deductible is a balancing act between your willingness to pay for smaller damages in exchange for yearly premium savings. Weigh the short-term and long-term financially impacts, along with the effect of a potential claim. Generally, homeowners should choose the highest deductible they are willing to pay. Raising a deductible can significantly reduce homeowners insurance premiums.
However, every insurance company handles increasing deductibles differently. One company may have a large premium reduction when moving from a $500 to a $1,000 deductible, whereas another may not provide significant savings until $2,500 or $5,000. Note that, for high value homes, deductibles can be much larger.
Your best deductible is a balancing act between your willingness to pay for smaller damages in exchange for yearly premium savings.”
Related Effects on Cost
If a claim is filed for any amount, your premium will ultimately be affected, even if only a small increment. Some companies promote “claim forgiveness” programs, which have some value, but claims are an indication of future risk and therefore affect future premiums.
A single large claim may affect your policy less than multiple small claims. Why? The greater the number of claims, the higher the risk, and the more an insurance policy will cost. This is another reason why larger deductibles are useful. Policyholders often make smaller, below-deductible repairs to homes without involving the insurance company.
Extra Expenses
Most homeowners policies cover a specified amount for extra living expense such as hotel bills, should the home be uninhabitable while damage is repaired. But a claim event often produces expenses not covered by the policy as well. Therefore, plan for emergency funds when considering your deductible.
For example, should a portion of your house be destroyed by fire, you may need to take time off work to move into a temporary location or even to coordinate with building contractors. There would likely be many demands on your time. Time off work is not an expense covered by homeowners policies. Thus, while increasing a deductible may save you money initially, don’t allow it to cause undue financial stress in the long run. Again, choosing a deductible is a balancing act between short-term and long-term effects. An emergency fund is one means to provide for miscellaneous expenses and supply a peace of mind.
Ask Your Agent
That sums it up. The best way to choose your homeowners insurance deductible is to ask your insurance agent for pricing on a variety of options. With the figures in front of you, the optimum choice often becomes apparent. Not a client of ours? Let us compete for your business. Each of our clients is assigned a personal agent in our office, given their email address, and provided a phone number that rings right on their desk.
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I haven’t heard about this term of Home Insurance Deductible and I am really happy that I came across this amazing piece of Knowledge. Today I am definitely asking my insurance agent about the Home Insurance Deductible. Thanks for spreading the knowledge.
I never consider the fact that it’s good to have a higher home deductible because it helps to make smaller repairs without affecting your insurance. My wife and I have been planning on buying our first house and we needed some advice on getting the right home insurance. Thanks for the useful information about the benefits of a higher deductible.
Thank you for the feedback. Let us know any questions you may have along the way and best of luck with your first home!
My husband and I are new homeowners, so I wanted tips and advice on getting the right home insurance. I didn’t know it’s good to have a higher home deductible because you can make smaller repairs to your home without involving your insurance. I’ll have to keep that in mind and ask the insurance company we use if our deductible has to be higher with kids, thanks to this post!
We are moving to a smaller home on May 31. Do I need to open a whole new account or just edit our current homeowners policy?
Mr. or Mrs. Nichols,
That is a great question. The answer depends upon a few factors such as your new location and details on the new home. I will have your account manager, Dawn Iverson, reach out to you in the near future.