If you happen to own your own home, it’s important to have the right kind of insurance in place to secure your investment. Traditional policies usually come with a low deductible, but the trade-off is often higher premiums. If you want to save more money on your long-term homeowners insurance costs, a high deductible policy may be the better choice for you.
Find out now: How much house can I afford?
How High Deductible Homeowners Insurance Works
When you buy homeowners insurance, you’re typically able to choose how much of a deductible you want. You can generally go as low as $500 or as high as $100,000 based on what you’re comfortable paying if you have to file a claim.
With a high deductible policy, the deductible is usually calculated as a percentage of your home’s value. For instance, if your insurer uses a baseline of 1% and your home is worth $250,000, your deductible would be $2,500.
A Higher Deductible Means Lower Premiums
The primary advantage of choosing an insurance plan with a higher deductible is that it reduces your premiums. The amount of money you’ll save varies based on where you live and which company you purchase your coverage through, but it can easily add up to several hundred dollars per year. If you go several years without filing a claim, that’s a lot of money you’re putting back into your pocket.
Potential Problems With High Deductible Policies
If you’re comparing insurance policies and a high deductible plan is on your radar, it’s important not to overlook the possible downsides.
For one thing, even though the deductible percentage may be fixed, the dollar amount can change. As your home gains value, your deductible would also increase. If you don’t have a decent cushion of emergency savings (at least the size of your deductible) you may be out of luck if your home is damaged and you can’t afford to cover the deductible.
Something else that it’s important to be aware of is the potential for other deductible costs to pop up. If you have clauses built into the policy that cover specific catastrophes, these may require you to pay a separate deductible when you file a claim.
For instance, deductibles for wind or hurricane damage policies can be 10% higher than the general deductible. The deductible limits are usually high in areas that are prone to hurricane activity, so if you live along the coast, you may be coughing up a lot of cash if disaster strikes.
Your Premiums Can Still Increase
Going with a high deductible plan doesn’t guarantee that you’ll be able to lock in lower premiums. If you have to file a claim, your insurance company could decide to hike up your rate. The result could be a premium that’s anywhere from 9% to 32% higher. If that happens, the money you’ve saved by choosing a high deductible plan goes right out the window.
Your credit can also have an impact on how your premiums are calculated. If your credit score drops right before your policy comes up for renewal, your insurance company may see that as a red flag and deem you a higher risk. In that scenario, you may still end up paying higher premiums despite having a larger deductible.
Related Article: What to Do When Your Homeowners Insurance Claim Is Denied
Compare Your Options
If you’ve got good credit and you can afford the expense of a higher deductible, it may seem like the right move. But it’a good idea to still do some comparison shopping. Taking a look at how much money you stand to save with a high deductible policy versus one with a flat fee can tell you if it’s really worth it.
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