Deductible: Is high or low right for me? Home insurance is a fantastic tool that protects our most significant investment in the event of damage, whether it’s from a fire, vandalism, roof damage after a storm, or water leaks.
With a policy in place, the insurance company covers the repair of the protected property. However, insurers like to share some of the risks they assume, and they do this through the deductible, which is a portion of the repair money that the homeowner must pay before the insurer issues compensation for the covered damage.
The deductible is the specified amount the property owner agrees to pay for each claim in the contract. It can range from $200 to $2,500, set by the homeowner. It’s important to note that it directly relates to the premium amount: the higher the deductible, the lower the insurance premium, and vice versa.
For example, if a homeowner with a $2,000 deductible claims roof damage costing $5,000, the insurer will only pay $3,000, with the remainder being the policyholder’s responsibility.
Following the same example, if the roof damage is assessed at $1,800, the homeowner wouldn’t be interested in claiming since, according to the contract, they are responsible for paying the first $2,000 of each claim, i.e., the deductible.
Additionally, the deductible can be set as a percentage, between 1% and 10% of the total coverage of the home. If your home policy is for $500,000, the deductible is 1% ($5,000), and there’s a $10,000 claim, you would be responsible for the first $5,000, while the insurer would cover the rest.
The good news is that the percentage deductible is only used in the wind policy – hurricanes and storms – and only one deductible is paid per hurricane season. In other words, if two different hurricanes damage the house’s roof in the same season, you would only pay one wind deductible, unlike the other deductible, which applies to each claim.
“Too much or too little deductible? How do you choose the right deductible?” Some homeowners often ask.
The answer is that there’s a suitable deductible for everyone; it depends on each individual’s financial situation.
For a homeowner with stable income and savings, a higher deductible is advisable, as it will result in a lower monthly premium. In the event of damage, they only need to use their savings to pay the deductible.
A smaller deductible may suit individuals without savings or unstable jobs. Of course, the insurance premium payment will be higher in this case. Deductible: Is high or low right for me?
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