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When you own a home, having adequate homeowners insurance is a necessity. If you have a mortgage on your home, you have no choice but to buy coverage since your lender will insist on it. If your home is paid off, you still need the protection, or you may face devastating repair bills. Choosing your policy can be a bit confusing, though, since you have to decide on how much coverage you need and how high of a deductible you should choose. Your financial situation and other factors may determine whether you choose a high or low home insurance deductible.
Most homeowners policies will carry a set deductible amount, such as $500, $1000 or $2000. When you file a claim for damages, you will have to pay that amount of the repair bill. For instance, if a tree falls on your roof causing $5000 worth of damage, your deductible will come out of that amount. If you have a $500 deductible, your insurance company will pay out $4500. Some policies carry a percentage deductible, such as 1%. When your home is insured for $250,000, you will pay $2500 of any claim. For many people, that amount is prohibitive.
Homeowners policies often have separate deductibles for wind and hail damage. These deductibles are usually percentage deductibles and may be higher in states that face frequent storms such as hurricanes. Flood and earthquake insurance policies are separate from your regular homeowners coverage. Standard home policies do not cover those situations.
A rider or endorsement is a provision added to your policy to add or restrict coverage. As the homeowner, you may ask for a rider to protect high-dollar items that are not adequately covered in your policy. Items such as engagement rings often have a rider, and these riders may have no deductible at all. Using a rider can be a smart way to save money while still protecting your valuables.
Of course, your insurance provider may add riders to restrict your coverage depending on certain risk factors.
As the policy holder, you will be able to choose from a low, medium or high deductible. Before you decide on the amount, you will need to consider several factors. Choosing a high deductible means that your monthly or yearly premiums will be lower, which is attractive to folks who want to save money. Of course, a high deductible also means that you'll need to have savings to cover your part if you need to make a claim. If coming up with $2,000 or more will be difficult, you may want to choose the lower deductible. When things are tight, finding even $500 can be difficult. You may decide paying a bit more each month for a lower deductible is well worth it. Or you may decide to split the difference and go with a "medium" amount.
You also want to consider the risks of damage in your area. While you cannot anticipate some incidents, like fires, you can look at the safety of your neighborhood, the condition of your home and your security measures and estimate how likely it is that you will be filing a claim. Studies show that the average home owner files a claim once every ten years. Of course, you are taking a little gamble no matter which deductible you choose.
Homeowners often avoid filing smaller claims because they fear that their insurance rates will go up. If you file too many claims, your coverage may well be dropped entirely. Finding the right balance of coverage, deductible and claims may make your head spin. That's why finding the right insurance company and agent is so important. You need someone who will honestly advise you on your insurance matters.
Insurance deductibles are just an unpleasant fact of life. They do protect insurance companies from frivolous claims. Most policy holders carefully consider their situation before submitting one to their company. Perhaps your best course of action is to imagine that your home has just sustained damage. Would you have enough money for the deductible? Would your policy cover the damage? If not, you may need to make adjustments to your coverage.