What are Deductibles in Homeowners Insurance?
Generally, deductibles are the amount a policyholder must pay out of their pocket before their insurer pays the rest of the amount. The cost of deductibles depends on the insurer, the coverage being offered by the plan, and the overall amount you pay in premium.
Generally, higher deductibles mean lower premiums as you're responsible for a considerable cost. The main purpose of having deductibles in any policy is to ensure fairness and responsibility in both parties. Since the policyholder also needs to pay a significant sum each time before raising a claim, it ensures that only minimal claims are raised due to genuine reasons.
In home insurance terms, deductibles must be paid by the homeowner towards every claim, before their insurer pays the remainder of its part. This amount is total loss minus the deductible.
In the case of home insurance, the deductibles are paid on a per-claim basis, that is, for every damage, you will need to pay the set deductible. For example, if there is damage in your house two times in a month, then you will need to pay two different deductibles. However, it also depends on how many properties the plan covers. For example, if your insurance covers the structure, the garage, as well as personal property and they get damaged due to a fire, then you will need to pay the deductibles only once to get your claim.
How Do Homeowners Insurance Deductibles Work?
Compared to other insurance plans, deductibles in homeowners’ insurance are different. For instance, in the case of health insurance if you need to pay a deductible of Rs. 5,000 for a benefit offering sum insured up to 1 lakh then this amount will not change, whether you claim Rs. 20,000 or Rs. 80,000. But in the case of deductibles in home insurance, the deductibles must be paid every time you make a claim. Depending on the kind of policy you have, your deductibles can be of the following types:
- As a Percentage: You need to pay the fixed percentage of the total sum insured, for example, 2% of a sum insured of Rs. 20 lakhs would be Rs. 40,000 towards any claim made.
- As a Fixed Amount: The amount is specified in rupees and you need to pay the exact amount while claiming the remaining sum. For example, if the deductible for fire damages is set at Rs. 5,000 and the overall damage requires Rs. 45,000, then you will only get Rs. 40,000 after you've paid the deductible amount.
- As a Hybrid: Both percentage and fixed amounts are decided. In most cases, you can pay a fixed sum but in case of some events, a percentage of the total sum insured will need to be paid.
Be it a fixed sum or a specific percentage, you will need to pay that amount every time a loss occurs. So if your house is prone to damages or recurring damages, make sure to go for a plan accordingly as you will have to pay the set deductible amount every time.
How to Decide Homeowners Insurance Deductibles?
Since you need to pay a deductible each time you raise a claim, it is important to know how much should your deductible be and how can you make the most of your home insurance plan. A plan with lower deductibles means your premium will be higher, whereas a plan with higher deductibles will amount to lower premiums but force you to spend more in case of damages.
Choosing the right excess amount entirely depends on your budget, risks, and type of coverage.
Here are some important things to consider before deciding your home insurance deductible amount:
- Make sure to fix a deductible that you can reasonably afford in case you need to file for the claim. If the sum is enough to cause you financial hardships, then opt for a lower amount.
- Assess your risks before settling on a plan. If you live in an area prone to the covered risks, you will need to pay that deductible every time a claim occurs. Opt for a lower premium plan if you think you can pay a large deductible in case of damage forces you to file a claim.
- Lower deductibles mean higher premiums; make sure to get different quotes to find a premium and deductible that you can easily manage.
Thus, a deductible can seriously affect your budget during a claim. If going for monthly payments, then this could place an added burden on top of the monthly premium amount.
One of the largest investments a person makes in a lifetime is a house. If you're insuring your house, don’t forget to compare different policies on Policybazaar.com. From deciding the correct value of your premiums and deductibles to the extent of coverage, make sure to buy the best homeowners insurance to secure your place.
Written By: PolicyBazaar - Updated: 10 March 2022