If you’ve had insurance for more than a minute, you’re likely familiar with the term “deductible”. Deductibles apply to various types of insurance: home, renters, auto, health, etc. Even within some certain coverages added to policies there could be a separate deductible that applies before the coverage “kicks in”. In short: for homeowners insurance the deductible is the portion you agree to pay (other than the premiums themselves) before the insurance company begins to pay for repairs to your home or property.
This portion you agree to pay in the form of a deductible is often a small percentage of your home, most often 1 or 2%. So, for example, if you have a $300,000 home and a 1% deductible you would pay the first $3,000 in the event you filed a claim to have your roof replaced and the remainder would be paid by the insurance company.
Insurance, both from the standpoint of the client and the company, is all about risk management. The more risk the insurance company takes in covering you the higher your premiums will be. The more risk you are willing to assume as the insured the lower, generally speaking, your premiums will be. A 16-year-old driving a brand-new Corvette is likely to be a higher risk for the insurance company than a 45-year-old with a perfect driving record sporting that 8-year-old Ford Focus. The same is true for your homeowners insurance deductibles. If you agreed (whether you knew it or not) to cover a 2 or 3% deductible before the insurance company has to pay to cover that roof or plumbing repair, you’re likely to see a much lower premium.
After February 2021’s winter storm a lot of Texans were shocked to learn that while they were paying crazy low rates for their homeowners insurance, they were expected to fork over a massive amount of money before the insurance company would cover any repairs. This was compounded by the fact that home values and rebuild costs continue to skyrocket in North Texas (hello rising cost of lumber).
LFIG isn’t opposed to high deductibles in and of themselves. There are a number of reasons someone could decide to have a 2, 3 or even 5% deducible. It’s never our job to “tell” you what to do. What is vitally important though, and something that we saw after the winter storm, is that clients know exactly what their deductible is, not just in terms of some random percentage, oh you have a 2% deductible, but rather “YOU’RE EXPECTED TO PAY $10,000 BEFORE THE INSURANCE COPMANY COVERS ANYTHING”. If you’re aware of the deductible, are comfortable with it and willing to assume that risk there isn’t an issue. The problem comes when so many people are shocked to find out what that percentage deductible means in real world dollars.
Because we have access to dozens of carriers, we can shop to find you the best coverage for the most affordable premium. As far as homeowners insurance is concerned part of that process includes discussing what kind of deductible, you’re comfortable with. It doesn’t make sense to cut corners on your deductible if you actually won’t be able to afford to pay it at claim time. Sure, raising you deductible from 1 to 2% mathematically means that you’ll save enough to make up the difference if you have to file a claim, but are you actually putting those premium savings away every month? Most people, understandably, are not.
The entire discussion about deductibles boils down to two things that we focus on at LFIG:
1) Determining how much risk you, as the insured, are willing to assume.
2) Making sure that you, as the insured, have the knowledge necessary to make informed decisions about your insurance coverage.
As a local, independent insurance agency based here in North Texas, we’re always willing and able to have those conversations.