One of the best ways to save money on your homeowners insurance coverage is by understanding how your deductible works. By definition, a deductible represents your share of the insured risk in an insurance contract. It’s the money you’ll have to pony up to repair or replace a covered loss. In other words, you file a claim and your insurance company deducts your share of the risk from the benefit pay-out.
Deductibles come in two basic types: they’re either a set amount of money or a percentage of your total policy coverage. Things are pretty straight-forward in the first instance. If you your homeowners or renters insurance policy has a $250 deductible for a covered loss and you file a claim for $1,000, your insurance company will send you a check for $750. However, if your deductible is a percentage of your coverage, it’s based on your home’s insured value (or in the case of renters insurance, the insured value of your personal property). That means if your home is valued at $300,000 and your deductible equals 3% of that, the first $9,000 of a loss would come out of your pocket.
Unlike health insurance, where deductible is assessed on an annual basis against all claims, your homeowners or renters insurance policy typically stipulates that you must satisfy the deductible on each claim. Depending on where you live, there may be exceptions. In Florida, for instance, where there can be multiple hurricanes in one year, state law says hurricane coverage deductible must apply throughout the annual hurricane season versus per event.
The more risk you’re willing to share in the form of a higher deductible, the cheaper your home insurance premiums will be. For example, if you increase the standard $250 deductible to $500, you could save from 10% to 12% on your homeowners insurance premium. Raise it to $2,500 and you could see savings as high as 30%. This is obviously one of the easiest ways to save money on homeowners insurance coverage. Just be sure you’re comfortable and capable of shouldering the cash burden in case of a loss.
You could also opt to carry less insurance than your assessed value, but it’s not recommended and in some cases, it’s not even your decision to make. If your home is still under a mortgage, for example, your lender can require how much coverage you carry.
Deductible only applies to the portion of your homeowners insurance that covers damage to the structure or your personal possessions. But, if you have a liability claim (like your dog biting someone), the deductible does not apply.
Deductible for supplementary coverage like earthquake, flood and hurricane will vary widely depending on where you live.
The best way to save money on homeowners insurance is to shop around and get competitive apples-to-apples quotes. You can do that easily at einsurance.com.