5 FAQs About Homeowners Insurance Deductibles
A deductible for a homeowners insurance claim is not very different from a deductible on an auto insurance policy. You choose the deductible amount and your monthly premium is adjusted accordingly. Just as with auto insurance, the higher your deductible amount for homeowners insurance, the lower your monthly premium will be. Each time a claim is approved, you have to pay a deductible amount before your insurer begins to pay for damages and losses. Homeowners insurance deductibles usually range between $500 and $1,000. The higher the deductible you choose, the lower your monthly payments (premium) will be. However, it’s important to choose your deductible based on what you can afford to pay. With that said, you’ll want to go with the highest deductible you can afford while avoiding filing claims when possible. Depending on your policy, however, your savings may be as low as $100 a year or less if you opt for a $10,000 deductible over a $5,000 deductible. Also a $10,000 deductible may break you financially if you do have to file a claim. Here are some important tips on homeowners insurance deductibles.
How Much Can I Save in Premiums if I Raise My Deductible?
On average, insurance companies use $500 as the base deductible. To go up to $1,000 deductible, the homeowner saves about 10% in premiums, but saves only 2% with an increase to a $2,500 deductible. The savings in the hike to $2,500 probably may or may not be worth the risk of paying $2,500 out of pocket for repairs. These, of course, are averages which vary greatly according to the state you live in. For example, according to a New York Times article, raising your deductible from $500 to $2000 will save you 41% in North Carolina, 20% in Massachusetts and only 6% in Texas and Indiana. Yes, the discrepancies are big!
How Is Home Insurance Deductible Paid Out?
One way that homeowners insurance is different from other types of insurance is that you only need to pay a deductible once if there are two or more types of loss filed due to the same incident. For instance, if a storm ripped off a relatively well-maintained roof and a guest was hurt when it happened, you’d file two claims but would only pay one deductible because everything happened on account of one storm.
Some liability or medical payments claims, however, carry no deductible at all, depending on the insurance company’s policy. It’s always good to ask questions when choosing a homeowners insurance policy before you buy one. For instance, if you tend to entertain often and are more exposed to liability risks than the average person, you may want to make sure you have this sort of coverage. With that said, homeowners insurance was not created to pay out claims several times a year. If you file more than a couple of claims within a few years, you risk your insurer dropping you, which makes it harder and more expensive to find new coverage. As a rule of thumb, choose your battles wisely and only file what you can’t pay.
What’s the Difference Between a Dollar Amount Deductible and a Percentage Deductible?
With both types of deductibles, you pay the agreed-upon deductible amount before the insurance company pays the rest. A dollar amount deductible is much like an auto deductible in that you choose an amount (e.g $500, $1,000, $1,500). Basically, how that works is that if you have $6,000 damage to your house from a fire or a tornado and you’ve chosen a $1,000 deductible, you would pay $1,000 and the insurance would pay $5,000.
A percentage deductible only exists with homeowners policies and covers a percentage of your home’s value. If your home is insured for $300,000 and you have a 1% deductible, you would have to pay $3,000 before any payment is made by the insurer. Remember that the value of the house is always determined by how much it would cost to rebuild it anew if it were to be destroyed, not what the market value is on the house.
Earthquakes and floods are not covered by homeowners insurance and must be bought separately. They also have separate deductibles. While flood insurance is available in dollar amount and percentage deductibles, earthquake insurance has a percentage deductible that can range from 2% to 20% of your home’s insured value. California, for instance, has a set 15% deductible for dwelling coverage (the house) and 10% for “other structures” like garages and sheds.
Also, areas that are hurricane-prone or prone to other types of disasters may have a special deductible. Florida, for instance, has a specific hurricane deductible because the state experiences so many hurricanes. This type of deductible is usually a percentage deductible and costs more than a standard homeowners insurance deductible. States in Tornado Alley (Kansas, Nebraska, Oklahoma and Texas) have special wind and hail deductibles, typically with percentage deductibles.
Are There Other Ways to Save Than Raising a Homeowners Insurance Deductible?
Absolutely! If you install a security system or sprinklers, you may be eligible for a discount. Also, if you bundle your homeowners insurance with your auto insurance, you’re eligible for a multi-policy discount as well (you can bundle also with business insurance and some carriers will give you the discount).
Buying a newer construction home may also save you money and so will regular maintenance of your roof and other elements of the home’s important features and systems.
Filing zero claims also makes you eligible for yet another discount.
Can I Change My Homeowners Insurance Deductible?
Yes, you can change your deductible amount by contacting your agent. It’s also a good idea to shop your rates to make sure you’re not paying too much. If you have been with the same insurer for years without filing any claims, see if your agent will give you a claims-free discount. Otherwise, speak with another agent for multiple free quotes. Many homeowners get lazy about seeing what competitive rates are out there and they end up paying too much for insurance. Be sure to discuss deductibles in detail before making a decision on which coverage to buy.
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