Is a Higher Homeowners Insurance Deductible Worth the Cost Savings?
By Ken May
In most cases, the deductible on your homeowner’s insurance policy will be higher than the deductible on let’s say your auto insurance policy for a number of reasons.
It is important to remember that your homeowner’s policy is for catastrophic type losses, it is not a maintenance agreement.
You simply don’t want to file claims for small amounts. Most often, we will quote a home policy with a $1,000 deductible but many people should consider having a $2,500 deductible or higher. Claims filed on homeowner’s policies will have a huge price impact on future policies for at least the next three years and sometimes longer. For example, why file a $1,500 claim (the company pays $500 after deducting your $1000 deductible) when your future premiums will go up so much that they dwarf the $1000 you saved? You may save a little in the short term but pay a lot more in the long run.
A benefit of electing to have a higher deductible on your homeowner’s insurance is the price break you will receive which could be significant. Add the savings to the fact that very few homeowner’s claims are filed due to where we live can result in a lot of extra cash in your pocket.
Some companies will charge you on future renewals simply if you make an inquiry about filing a claim and not even actually filing a claim. Before calling the insurance company, it is always a good idea to consult with your agent about the consequences of filing a homeowner’s claim and whether or not you should do so in the first place.
Q. What if I can’t afford a $2,500 deductible?
A. That’s a good question. You may be able to scrape together the $1,000 but simple math dictates that in the long run, you would be better off with the higher deductible, enjoy the premium reduction on your policy, and pay for the smaller claims out of your own pocket to avoid large premium increases in the future.
Q. It doesn’t seem fair that I get punished for filing a claim. Isn’t that what insurance is for?
A. Well, yes and no. Insurance is to protect you against the larger devastating losses and insurance companies like when the policyholder has some “skin in the game” meaning they will take better care of their house and property and be more careful if they are responsible for a nominal amount up front before the company gets involved.
Q. Aren’t all policies the same?
A. Not at all. The coverage basics are similar but the perils covered can be different, the amounts of coverage can be different, and there are numerous endorsements available which enables the agent to cobble together a policy with you that makes sense. One of our largest companies notified us that there are 220 rating factors used to underwrite a homeowner’s insurance policy.
Q. This is confusing. What should I do?
A. That’s why you have an agent to help you through the process of protecting your biggest asset which for most people is their home. We have people who can guide you through the maze of coverages and work with you to make sound decisions on what coverage you need to have and other coverage that you may elect not to have. And your agent should be able to help you make the decision on which deductible should be chosen on your policy.
If you have any questions, stories, or comments, we would love to hear from you. We will do our best to respond to each and every one.