WHAT IS BEST WHEN CHOOSING HOME INSURANCE DEDUCTIBLES?

September 28, 2018 | Blog,Preparedness

Making the right choices about your homeowners’ insurance and what deductible best suits your current financial situation is vital.

What Is A Deductible?  What Is A Premium?  Where Can I Find My Current Rates?

  • A deductible is the amount of money you will pay out-of-pocket toward damages or a loss before your insurance company will pay for a claim.
  • A premium is the amount you pay for an insurance policy (typically monthly) to keep it active.
  • Deductibles are typically dollar or percentage amounts. The amount you choose is locked in with the terms of your coverage when purchased.  Your deductible can typically be found on the front page or declarations page of your insurance policy.

How Do Deductibles Work?

  • For dollar amount deductibles the amount you pay comes out of the claim payment. For example, if you pay a $500 deductible and your claim is for $5,000, you would receive a claims check for $4,500.
  • Percentage deductibles are based off a percentage of your homes insured value. For example, if your home is insured for $200,000 and you have a 1% deductible, $2,000 would be deducted from your claim payment.  If your claim was for $10,000 your coverage amount would be $8,000.
  • Deductibles apply each time you file a claim. (Exceptions in Florida)

Higher Deductible or Higher Premium?

  • The higher your deductible the lower your premiums and vice-versa. So, raising your deductible as high as you can reasonably afford helps to lower the cost of your premium.
  • Premiums can be reduced by upwards to 20% with a higher deductible however, raising your deductible higher is not always the best choice.
  • In the event of a loss you’ll be responsible for your deductible.  You don’t want the cost of your deductible to cause added stress to an already difficult situation.  Plan ahead, have an emergency fund, and know what you are financially comfortable covering if the need arises for you to make a claim.
  • If you are financially able and prepared to pay higher deductible funds then raising your deductible rates could be the right choice for you. You will see a difference in your premium rates but, be aware that if you need to file multiple claims in a year your financial obligations may be higher overall.  Multiple claims may also increase premium rates due to your higher liability for a claim.  These are things to take into consideration.

Being financially prepared and comfortable with what you may have to cover out of your own pocket may ease the burden of a difficult situation.  Talk with your insurance agent to determine which deductible is best for you.

 

 

References & Additional Information

https://www.insurance.com

https://www.valuepenguin.com/choosing-homeowners-insurance-deductible

https://www.policygenius.com/homeowners-insurance

https://www.iii.org/article/understanding-your-insurance-deductibles

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