Some people look for ways to keep their home insurance costs low. There are ways to do this wisely and other ways are just foolish. A deductible is the amount of money you pay before your insurance company will pay. For the example, the average home is around $250,000. (hypothetically) and a 1% deductible is $2,500 for any claim, 2% would be $5,000 and 5% would be $12,500. What is your gambling tolerance level?
Most people want a low to medium risk – the 1% to 3% deductible range. The cost difference in most homes is minor for the deductible difference. Yes, the higher the deductible the lower the premium, but before you go straight to the 5% or higher deductible look at the cost savings. It is usually not worth the return over about 3%.
It is usually not worth the return over about 3%.
If you are a young couple with little money just feeling lucky to get into a house – keep your deductibles low so that if anything does happen it will not be catastrophic to your family. Older couples who have a little more financial reserve might consider a slightly higher deductible because they could afford to take a hit financially if something happens to their home. You alone know your financial situation.
The “average roof” on our “average home” is about $20,000. So, if you get hit in a hailstorm and you need a new roof what are you comfortable paying out of pocket? Percentages based on your coverage A of $250,000- 1% at $2,500, 2% at 5,000, 3% at $7,500 or higher?
In Texas, most policies have two deductibles: Wind/Hail and All Other deductibles. The Wind/Hail covers damage to your home by weather – wind, storms and hail. This is the most commonly used coverage. It is also the most expensive of the coverages. If you can afford to pay a higher deductible, this is one place you can choose to have a higher deductible for a lower rate.
The downside is that if you need to use your coverage, the cost out of your pocket will be higher. Another consideration is the All Other Perils deductible to reduce the overall cost. This is a much lower impact to the overall cost of the policy. However, selecting a higher deductible will help lower the premium slightly. This deductible is used for theft, fire, and water claims – anything but storm damage. Assess your own financial situation and carefully review the differences in premiums to find the best balance for yourself.
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