Deductible

Glossary

One of the most important figures in your home insurance policy is the deductible. The deductible represents the amount of money you must pay toward your claim before any insurance benefits kick in. For instance, if you were to make a house insurance claim for $5,000 and have a deductible of $1,000, you would have to first pay that $1,000 deductible before your home insurance provider picked up the rest of the $5,000. Deductibles are typically expressed as a specified dollar amount or a percentage of a claim.

How are Deductibles Determined?

Your home insurance deductible is generally determined by several different factors, such as the value of your home and the type of policy you’ve chosen. You also have some say in the size of your deductible. House insurance providers allow customers to adjust their deductibles to their own liking, but remember that changing it will have a direct affect on your monthly premiums as well.

Tweaking Your Deductible

As you may have heard, one of the most common ways to lower your home insurance premiums is to increase your deductible. Most home advisors would recommend this as the first step for anyone looking to save some money on home insurance. While there is some risk involved, increasing your deductible could potentially save your hundreds, if not thousands, of dollars in premiums over time. In this situation, people are working under the logic that their premiums must be paid every month, but there’s only a small chance that they’ll ever even have to pay their deductible. Thus, saving money on their monthly premiums is worth the risk of possibly paying a higher deductible, should that day ever come.

What if You Can’t Afford Your Deductible?

If you do decide to increase your deductible to save on rates, you could run the risk of not being able to afford them. Over the past several years, many people have found themselves in this situation. With some of the nation’s most deadly hurricanes wreaking havoc this decade, more people than ever have been forced to pay their home insurance deductible unexpectedly. Coming up with several thousand dollars can be a difficult prospect for anyone, let alone those who have just been through a major disaster. However, if you’re struggling to come up with your deductible, you still have options. One of the most common ways to pay off a deductible is through a home equity loan. They tend to have reasonably low interest rates, which makes them a good option if you’ve been paying off your mortgage for several years. In truly desperate situations, there’s also the option of borrowing a loan from your 401(k), although you will incur penalties and taxes for withdrawing early. Of course, the best way to avoid this issue is to simply save up enough money to cover your deductible in an emergency.