Probably the common question in homeowners insurance is how to save money on monthly premiums. Of course every homeowner needs insurance, but owning a home comes with several other costs. A homeowner has to balance these other costs with the price of insurance. There are several ways you can lower your premium, from installing a home security system to simply bundling your home coverage with other policies like auto. Today we’re going to focus on an important savings question: Should you raise your homeowners deductible to lower your premium?
Common Homeowners Deductibles
Every homeowners insurance policy has a deductible, and they can vary from just $500 to several thousand dollars. In the event of an insurance claim, a homeowner must cover the deductible before any additional payouts are issued from the insurance company. If you didn’t ask for a specific deductible when you set up your homeowners policy, you likely have the standard deductible amount for your type of policy. The first step in evaluating whether to raise your homeowners deductible is to see what yours is currently set at. Often most standard deductibles start between $1000 and $2000. If you’re looking to lower the cost of homeowners insurance, you should consider raising that deductible higher. Here is why.
Why Deductibles Matter
It’s no secret insurance deductibles can affect your premiums. The deductible is one of many factors insurance companies utilize to establish how much coverage can cost. Think about it this way. If you have a lower deductible, say $500, insurance companies assume you’ll be willing to file a claim for a less-expensive event. A tree falls on your home and the estimated bill of repair is $1000, then you’re likely to file a claim, no big deal. In the same circumstance if your deductible is $2500, you’ll just handle the repairs yourself and keep any insurance claims out of it. The less likely you are to file a claim, the more savings you can expect in premium costs.
How Much Is Too Much?
It’s important to remember that raising your deductible too high for the sake of savings can place you in a difficult position. For example, you’ve raised your deductible to $4000 or more, but you don’t have that amount available on hand should you have to file a claim unexpectedly. A few days later a catastrophic storm rolls through your town and leaves you with damage many times higher than your deductible payment. If you can’t produce the initial $4000, you could lose out on important coverage that you need to fix your home. Those who have deeper savings accounts can leverage the investment to raise their deductible, but don’t go overboard. Raising your deductible extremely high simply becomes too risky, and you’re better off paying for a lower deductible to stay in a more comfortable financial position.
Managing Claims
When you’ve established your deductible, you need to have a plan to address potential claims in the future. The majority of homeowners insurance claims carry the risk of raising your rate after the claim is payed out. This means you need to choose the occasions to file a claim carefully. If you can handle a claim independently that may cost you some money now, you could potentially save more in insurance premiums down the line. There is a delicate balance to achieve. As a general rule, you should only file a homeowners claim when the damage costs are a significant drain on your financial resources. Filing low-benefit homeowners claims can ultimately raise your premiums and lead to less savings overall.
Insurance companies track how often you file claims, and ideally there needs to be several years between significant claims if possible. There are a few things you can do to prevent future claims. Preventative maintenance is huge in this regard, and fixing a problem now before it gets worse could prevent that pricey claim. You’ll also want to take care of your property to prevent liability claims. Shovel and salt those sidewalks in the winter, and make sure your fence is in good shape so your dog doesn’t get out. Taking care of problems now is the best way to prevent expensive claims in the future, and you’ll keep that premium low in the process.
Should You Raise Your Homeowners Deductible?
So, the question remains: Should you raise your homeowners deductible? It takes careful financial planning to determine the proper deductible for your home. If you’re in a position to handle a higher deductible in the event of a claim, then yes it makes sense to raise your homeowners deductible to a reasonable amount. Your deductible amount should always be something you can cover in an emergency. If you don’t have access to the amount of your deductible in a pinch, you may be better off lowering it. Each situation is different, and only a homeowner will know what is acceptable for their policy.
If you’re not sure what your deductible should be, or if you’re simply looking to lower premiums on your homeowners policy, contact us at Square State Insurance. We’d be happy to help you evaluate an acceptable deductible for your needs. While we’re at it, we can walk you through other measures that might save you money on future premiums. Don’t wait, call into today to see if you can save money by raising your homeowners deductible!
