Homeowners Insurance Deductibles And How It Works

This Article Is About Homeowners Insurance Deductibles And How It Works

Homeowners Insurance Deductibles use to be straight forward and simple:

  • It was the dollar amount stated in your homeowner’s insurance policy that you’d pay out of pocket prior to any insurance coverage kicking in
  • For example, let’s say you had a leak and your home subsequently suffered severe water damage, you’d then call your insurance company and file a claim
  • Your homeowners’ insurance company would subsequently recommend that you get three different estimates from three different independent companies to make sure you are getting the correct diagnosis
  • Once those estimates have been collected the insurance company would then pay for the repairs for your work
  • So let’s say you had $6500 in damage, if your homeowners’ insurance deductibles were $500 your insurance company would subsequently deduct that amount from the claim and pay the balance of $6000, it use to be straight forward and simple

How Homeowners Insurance Deductibles Work NowHomeowners Insurance Deductibles

However, nowadays like so many other changes, Insurance companies have changed too, offering different types of deductible programs that make actually matters much more complex. What happens with deductibles these days?

Here are the three leading major trends:

HIGHER HOMEOWNERS INSURANCE DEDUCTIBLES:

  • Homeowners Insurance Deductibles based on a flat dollar amount have been creeping up in the past few years
  • This is whereas a $250 used to be relatively common, many insurance companies now encourage customers to take on higher deductibles
  • In fact, many insurance companies don’t even offer lower deductibles anymore

But they’re not the only ones driving this trend:

  • During the recession of 2007-2009 and the subsequent recovery period, many homeowners chose higher deductibles to keep their monthly payments lower
  • in most cases people often found they were more comfortable paying a higher deductible even after their financial situation improved

SPLIT OR MATRIX HOMEOWNERS INSURANCE DEDUCTIBLES:

  • Insurance companies offer this type of deductible for people who want different deductibles for different types of losses
  • For example, in some regions of the country insurers will allow you to have one deductible for wind and hail damage and another for everything else

PERCENTAGE OF HOMEOWNERS INSURANCE DEDUCTIBLES:

  • These deductibles have been popular in many states and are slowly becoming more popular throughout the country
  • Rather than being set at a flat dollar amount, the deductible is stated on a percentage, typically 1 or 2 percent of your dwelling coverage or the amount your policy states you’ll need to completely rebuild your home (not including content replacement)
  • So for example, if your home coverage was for $500,000 and your deductible was 1 percent you’d pay $5000 out of the pocket of any repairs

Percentage deductibles often require one to pay more OOP costs (out of pocket) than your conventional flat dollar amount deductible, but also typically come with a lower premium.

Homeowners Insurance Deductibles And Choosing The Right Deductible For You

So the question is, how do you choose the right deductible for you?

  • With all these new options it can be a bit difficult to decide what’s best for you
  • Generally, insurance is taken out to protect you from large losses
  • Not so much for the little things you typically can afford to repair yourself, which is usually why most people choose a higher deductible
  • If you decide to go that route, keep in mind that you’ll retain more of the claim cost should something substantial happen to your house
  • In other words, if your deductible is $5000 you’ll need to come up with that should you experience a significant loss
  • Whatever you decide to do, always carefully read through your policy, including your renewal packet when it comes each year
  • Whenever you have questions be sure to talk to your insurance agent

Better to take the time to clarify any concerns now rather than later and be surprised.

About The Author

How much is your home insurance deduction and choosing the right deduction for you

Mike Richardson is an associate contributing editor for Gustan Cho Associates. Mike Richardson is the main writer of this blog. Mike is also the President of Capital Lending Network, Inc. Tammy Trainor is the co-author of this blog and is the Chief Operating Officer at Capital Lending Network, Inc. and associate contributing editor of Gustan Cho Associates. Tammy Trainor is an expert in all areas of mortgage lending and specializes in originating and funding FHA, VA, USDA, Reverse Mortgages, FHA 203k, Conventional, Jumbo, and Commercial Mortgages.  Tammy Trainor is also a veteran real estate investor where he owns commercial investment properties in both California and Florida. Due to Tammy Trainor’s extensive experience in real estate, mortgage lending, and life in general, Tammy became a professional writer. Gustan Cho Associates is proud to have Tammy Trainor and Mike Richardson contribute their knowledge and expertise to Gustan Cho Associates.  Stay tuned to more informative articles by Tammy Trainor and Mike Richardson in the coming weeks.

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