Choosing The Right Deductible

A deductible is the amount of money a policyholder must pay out-of-pocket toward damages or a loss before their insurance company will pay for a claim. You do not actually pay your deductible to your insurance company like you would a premium or bill. If you file a claim and it is covered, the deductible is subtracted from the amount claimed. For example, say you have a $500 deductible and you file a claim for $10,000. Your insurance company would pay you $9,500 for that claim.

There are generally two types of deductibles: a dollar-amount and a percentage based. The difference between them is how your deductible is calculated, and there are a couple of nuances depending on how much your home is valued at. Once calculated, the amount a homeowner pays if they file a claim is fixed for the length of that policy.

Your home insurance deductible should be as high as you can reasonably afford because the higher your deductible, the lower the cost of your premium. Raising your deductible can reduce the cost of your homeowners insurance premium as much as 20%, but that does not mean you should raise your deductible as high as possible.

When choosing a deductible, what you’re really doing is balancing the short-term cost you can afford (your deductible) and the long-term cost of a policy (your premiums). The more you can afford in the short-term, the more you’ll save in the long-term because your premiums will be lower. Insurance companies design the products this way to encourage homeowners to assume more of their own risk and to reduce administrative costs for small claims. For example, the premiums would be higher for a policy that has a $500 deductible versus a $1,000 deductible because the policyholder elected to assume greater financial risk. They would have to pay $1,000 toward a claim instead of $500 if they had to file one.

There are other reasons it makes sense to raise your deductible. Every insurance company is different but typically if you file a claim for any amount, the cost of your premium will increase because you’ve essentially become a riskier and costlier homeowner to insure. And the more claims you file, the higher your premium will be. For that reason, there are circumstances in which even if you have a low deductible, it might not be in your best financial interest to file a claim.

For example, say you have a $500 home insurance deductible. If wind destroys a small part of your roof and causes $1,000 in damages, you probably shouldn’t file a claim if you can afford to pay for the damages out-of-pocket. Yes, you could have your insurance company cover the $500 after your deductible but the cost of your premium might increase. That increase might be small or large, depending on the amount claimed and especially the number of claims you’ve made. If you file multiple claims, the cost of your premiums could go up as much as 25% or more and you never know what what the future holds. After the small wind damage, hail could destroy your roof entirely and a tornado could damage your home a month later. All of a sudden you haven’t made it through the spring of one calendar year and you’ve already filed three claims. So if you’re in a financial position to consider paying for small damages or losses out-of-pocket, then you should increase your deductible and lower your monthly premiums. If you remain claim-free for usually three years, companies can lower your premium rate.

Keep in mind that many insurance companies offer a one-time discount to customers who have never filed a home insurance claim. The discount might lower the cost of a standard policy anywhere from 5 to 20% depending on the company. If you file a claim and negate that discount, the cost of your premium will increase.

You should also keep in mind your emergency or available funds with an eye toward paying your deductible. While raising it can drop your rates, it should not do so at the cost of financial stress. Everyone should have a liquid emergency fund in the event of unpredictable circumstances. A homeowners insurance deductible might be one of those so consider what you you have saved for an emergency when choosing your deductible. At the same time, it’s not a good idea for your deductible to entirely wipe out the savings you’ve set aside for an emergency. You might need additional emergency funds at the time you have to file a homeowners insurance claim. For example, say a fire or tornado destroys half of your home and it is uninhabitable. Most homeowners policies also offer additional living expense coverage to take care of hotels bills, restaurant meals and other expenses. But what if you reach your limits for those expenses or need money for another emergency? If your deductible consumes your entire emergency savings, you might not have the money to cover those expenses.

After a Claim

After a claim has been filed, and if you filed the claim yourself, your work is not finished. You have to be diligent when filing a claim in a water loss, or any loss for that matter, because you want to be sure you’re getting what you deserve.  Here’s a short list of things to do after a claim has been filed:

Reviewing the Claim Process

After you’ve reported the claim, the following steps will take place:

  • The loss report is assigned a claim number and assigned to a claims handler.
  • A property adjuster will contact you to confirm the facts of the loss. This may include an inspection of the damaged property. The adjuster will then determine if coverage applies, and, if so, evaluate the damages.
  • After the claim is initiated, the adjuster or claims handler will check on the progress of the claim and make every effort to efficiently complete the process. Some claims can be settled quickly. Others—especially those involving severe damages—may take longer.

Keeping Track of the Details

To help stay organized and involved, you may want to maintain a file regarding your homeowners insurance claim/loss that includes the following:

  • Customer’s name as it appears on the policy
  • Policy number
  • Claim number
  • Claim handler or adjuster’s name, mailing address, phone number and title
  • Estimates, correspondence and notes of phone conversations regarding the claims settlement

Keep this file with you. Wherever you talk to your homeowners insurance claims handler or adjuster—at home or at work—your documentation will help ensure the claim is processed in a timely, accurate manner.

Homeowners Insurance Checklist

Having a water loss in your home is something no one ever wants to think about it.  But when it does happen, it’s better to be prepared then to be caught off guard.  Here’s a short list of things to do when you have a water damage loss:

  1. Quickly report the claim. You can file a homeowners insurance claim by contacting your insurance company, hiring a public adjuster or you can file your claim online. The sooner you report the loss, the faster they can get moving on your claim.
  2. Protect your home from further damage. Stop water from leaking by shutting off the valve, place buckets in rooms with water leaks, hang plastic over damaged areas to prevent water from leaking into your home or board up broken windows, for example.
  3. Record the damage done to your home. Take pictures or video of any damage to your house and its contents. Make a list of what is damaged in your home. Include details when possible—such as the brand name, manufacturer, serial number and approximate price you paid. Organize your list by room.
  4. Maintain a list of repair expenses. Keep track of the time you spend cleaning up or repairing your home after the claim. Also record any money you’ve spent on materials to temporarily fix the damage. It’s important that you don’t make any permanent repairs until your ERIE adjuster has seen the damage.

Hiring Franchises

Recently I went into a home where they had a major leak from a second floor sink.  The water damaged some walls and flooring on the second floor, but did most of it’s damage was to the first floor and basement.  The insurance company pushed the owner for their “approved contractor,” and she agreed not realizing she had a choice to hire whomever she wanted.  After six weeks they completed the job which should have taken five to six days, because they weren’t showing up everyday and going to other jobs.  This behavior is common for these types of companies and even some people reading this right now know exactly what I mean because they’ve experienced it  Be it that it took so long for them to take care of the home and properly dry it, mold has surfaced.  That’s where we come in.

We gave the owner a price that was just over ten thousand dollars to correct an issue that should have never occurred, and wouldn’t have if we were hired first.  I say it time and time again, that you have the right to hire any contractor of your choosing when it comes to an insurance job on your property, as long as they’re certified and insured.  Most franchises in restoration could care less about doing the job right because they’re more interested in placing equipment in your home.  So remember a few tips:

  1. If you have a loss in your home, you can hire whomever you chose.
  2. Any company performing work in your home which is being paid through your policy, is still responsible to show up every day and complete the work in a fashion as if you were paying them out of pocket.
  3. You can communicate directly with your insurance agent if you have an issue with any company they sent out, and you shouldn’t wait until they’re finished.
  4. Ask for a copy of the invoice and double check exactly what they’ve done as compared to what they’re billing for.  Remember, even though you may not being paying for this expense out of pocket, you will eventually as the insurance company most likely will raise your premium.
  5. You can still fire any company the insurance company sends out if they cause more damage t your home or don’t show up as promised.  You are not at their mercy.