Do not be afraid of high deductibles

High-deductibles-II-resized-600.jpgWhen it comes to homeowners insurance, do not be afraid of high deductibles.  We as consumers tend to choose lower deductibles, we do it out of habit, but most of the time because no one has ever taken the time to explain the benefits of higher deductibles to us.  Most of the clients I come across tend to have a $500 deductible or lower on their home, when in reality a higher deductible could actually be better for them in the long run.

Most of us, if not all of us HAVE to have insurance on our homes.  Its either required by the bank as we have a mortgage on it, or if the house if paid off we want to make sure should something happen our home gets rebuilt.  Where I believe often times a misconception comes in is that home insurance IS NOT a maintenance program, there is a cost to owning a home.  Often times insurance agents do a poor job of educating their clients on when they should, and when they should not file a claim ultimately setting you, the client up for disaster.   What I mean by that is this – when a storm comes through town and does damage to your home you need to look at the amount of damage before turning to insurance (most local contractors will give free estimates without obligation to repair).

For instance, if the gutters fell off of your house, or your fence was damaged causing less than $2,500 in damage – in my opinion you need to foot that bill.  Most if not all insurance companies have a “2 strike rule” meaning if you have 2 claims within a certain period of time they will drop you, and most companies will not take you on a new customer if you have to many “active” (2 or more claims within 3 to 5 years) claims.

Now I know what you are thinking – “I pay all of these insurance premiums, and I can’t turn in a claim?”  The answer to that is you can always turn in a claim, but you need to understand what happens when you do.  Every claim you make against your homeowners insurance can raise your rates. One claim pushes it up an average of 9 percent and two claims (hopefully you wont get dropped) will raise it by 20 percent, according to a recent study by So you want to pay out of pocket for small claims anyway that you can.

Here is an example of what typically happens when agents do not educate their clients.

A storm rolls through town today and does $1,200 in damage to your house.  Immediately you call your agent and he turns in a claim without much discussion.  The company then sends you a check for $700 (assuming you had a $500 deductible).  Now fast forward a few months or even a year down the road and a BIG storm comes through doing $20,000 in damage to your house, this is a claim you have to turn in, I mean who has $20,000 laying around right?  So now you have 2 “active” claims within a 1 year period.  Chances are your current company will drop you, and no one else will write you, or if they will the rate is through the roof (2-4 times higher).

Let me be clear – if you have a $500 deductible and your claim is $500.01 you have the right as a paying client to claim that $.01, but understand what happens on the back end.  We as agents need to do a better job educating our clients on the benefits of insurance, the purpose of it, and how it can work for you and also how it can work against you.  To many times agents are afraid to have this discussion with clients as they do not want to upset them, as this can be a touchy subject.  I on the other hand would prefer for you to know upfront how your policy works, how it will benefit you, and when you should and should not use it.  In addition a lot of times going to a higher deductible can save you hundreds of dollars each year on your policy.

Take the time to have this discussion with us, or with your current agent.  Look at moving your home deductible to $1500, $2,500 or if you can afford it up to $5,000.