If you think of homeowner’s insurance as a way to pay for every little problem that pops up in your home, you’re missing the main point of insurance: To cover major losses.
Flood, fire, theft and other major accidents or losses are worth filing insurance claims for. But if the damage isn’t in the thousands of dollars and doesn’t meet your homeowner’s insurance deductible, there’s really no point in making a claim.
Unfortunately, some things are just part of the cost of owning a home. Asking your insurance company to pay for $2,500 worth of electronics that were stolen from your home, or to cover $2,000 for a leaking window that caused some minor water damage, may not be worthwhile.
A big insurance deductible — such as $5,000 to $10,000 — can make you think twice about filing a claim, and can be one of the biggest ways to save on homeowner’s insurance. A typical homeowner’s insurance deductible is $500 or $1,000.
ACE Private Risk Services reportedly has clients with $5 million homes and $100,000 homeowner’s insurance deductibles. Increasing a $2,500 deductible on a $1 million home to $10,000 can result in saving $1,000 per year on homeowner’s insurance.
The higher the value of your home, the more you can save on insurance premiums by having a higher deductible.
MetLife, for example, offers flat dollar deductibles of up to $10,000 — except in Texas, which has percentage deductibles. For a coastal Virginia home insured by MetLife for $1 million with a $1,000 deductible, the homeowner could save $300 a year with a $2,500 deductible or $600 a year with a $5,000 deductible.
When picking a deductible, it should be an amount you can afford to pay after a loss and is money you have set aside for this expense, or at least can afford with your income and savings. If it’s the same amount you’re comfortable with paying a repairman, then it’s probably too small.
Again, the point of insurance is to pay for risks you can’t pay for yourself — such as fire destroying your home or a car crashing into your living room. A high deductible helps put aside considering lesser insurance claims.
One aspect to consider when picking a lower deductible is your chances of filing a claim. The less of a chance you have of filing a claim, the more time you have to save for a higher deductible.
Homes insured by ACE, for example, suffer a loss about once every 20 years.
According to the Insurance Information Institute, 4.8 percent of insured homes had a claim in 2013. From 2009-13, 7 percent of insured homes had a claim, with wind and hail accounting for the largest share of losses at 3.2 percent. The average claim for all losses was $8,793, providing an idea of the threshold for deductibles.
To help minimize the chance of a loss so you won’t have to pay a high deductible, it can pay to install burglar and fire alarms to help avoid what accounts for the most claims: Property damage. Putting your expensive jewelry in a safe at home or in a bank, or having a burglar alarm, could help you avoid such popular thefts and allow you to increase your insurance deductible.
Property damage, including theft, accounted for 97 percent of homeowner’s insurance claims in 2013, according to III. Jewelry was the top claims category for homeowner’s policies in 2012, both in frequency and dollar value.
Other precautions to make your home safe can also help convince you to increase the deductible, provided you use the extra time without filing a claim to save for the higher deductible. Burglar and fire alarms and other protection systems can also lower insurance premiums, including automatic leak detectors, battery backup systems for sup pumps, and lightning protection systems.