Finding the Best Home Deductible
A deductible is an important part of your home insurance policy. It determines how much you must pay when you file a claim, and it affects the cost of your policy.
In general, the higher your deductible, the lower your insurance premium. A low deductible means you will pay more in premiums. Recognize the trade-off so you can choose the best home deductible possible.
What is a Deductible?
A home deductible is the amount you must pay before your insurance company pays its part. The same deductible applies to most claims – theft, fire, or whatever your policy covers. Other claims, such as personal liability or guest medical, rarely have a deductible.
Home Deductible Types
There are three types of home deductibles: dollar, percentage, and split. Know the difference to choose the best home deductible for you.
Dollar Deductible – The typical deductible is a dollar-value flat rate deductible. It is the specific dollar amount you must pay before the insurance kicks in.
Percentage Deductible – A percentage deductible involves the insured value of your home. It is a percentage of the total coverage amount.
Split Deductible – A split deductible is a hybrid of the others. It uses a dollar amount, but switches to a percentage deductible in certain scenarios.
Special Risk Deductible
In high-risk areas, insurance companies try to protect themselves against major disaster claims. They do this through high deductibles that apply only to the risk.
For the best home deductible, you must know what a standard insurance policy covers. Most do not cover damage from major disasters like earthquakes and hurricanes.
Choosing a Deductible
Your financial situation determines the best home deductible. Most insurance agents suggest the highest deductible for your comfort. This could be a psychological or monetary decision.
If you are well off, your decision is mathematical one, based on the amount you can save. A wrong calculation would be irritating but not devastating.
If you have little money to spare, you need lower monthly premiums. Make sure you have access to funds, such as a line of credit, in case you must pay a big deductible.
If your finances are stable, look at your situation to determine a deductible. Decide what you can afford now and build a savings for a higher deductible.