When you buy a house, you will also be required to purchase homeowners insurance to ensure that your property is protected in the event of any damage or disaster. A homeowners insurance deductible is the sum of money you need to pay before your insurance coverage becomes effective. The claim which the insurance company pays is the total sum of damage minus the deductible.
Types of Homeowners Insurance Deductibles:
There are three main types of homeowners insurance deductibles. They include:
A dollar amount: Your deductible is the specific amount of money that must be paid by you before your insurance company fulfills its responsibilities. For instance, you have a small fire at home which causes $5,000 worth of damage to your property. Now, if your deductible is $2,000, you will have to pay that amount before your insurer would take care of the remaining $3,000.
A percentage: Your deductible is a certain percentage of your insurer’s total coverage sum. Therefore, if your home insurance amount is $400,000 and your deductible is 4%, you would have to pay the said percentage of the insurance cost. In this example, that is, 4% of $400,000 which is $16,000.
A split deductible: This is a combination or hybrid of both of the above types of home insurance deductibles. A split deductible uses the dollar amount deductible in most cases but may switch to a percentage-based deductible in specific situations, such as damages caused by natural disasters.
What Is a Disaster Deductible?
This is also known as a casualty loss. A casualty loss is caused by a disaster resulting in the destruction, damage, and loss of personal and business property. However, casualty losses are only deductible if they happen to your personal property due to a federally declared disaster. Every other casualty loss is not deductible. Also, taxpayers who live in areas specified by the President to have a high risk for federal disasters are qualified for a disaster deductible. Examples of natural disasters that would qualify include floods, wildfires, hurricanes, and tornadoes.
How to Choose the Right Deductible
- Consider how much you are able to afford in premiums. It is important that you know that the lower the amount of the deductible, the higher your insurance premiums will cost.
- Also consider the amount of coverage you would need or have.
- When picking a deductible type, make sure that the amount in your emergency fund would be able to pay for any damages that your home might experience unexpectedly. If this isn’t possible with your choice of deductibles, it is advisable to go with something that falls within the price range of your emergency funds.
- Consult with an insurance expert who would assess your property and its features, and then advise you on the type of coverage you need, as well as the financial aspects of it, including both deductibles and premium payments.
It is important to choose the deductibles that are reasonably affordable as well as effective. It is also very important to consult a reliable and experienced insurance expert. Reach out to us at First insurance Solutions today to secure personalized insurance solutions that will work for you.