One crucial factor that directly influences whether people can make the most of their NY home insurance policy or not is the type of deductible they choose. Since each homeowners policy comes with a deductible, consumers should have the knowledge necessary to make an informed insurance purchase. To help make the best decision we’ve come up with the following guide.
Homeowners Insurance Deductibles
First of all, it’s imperative to define what a deductible is. A deductible is a specific amount of money that someone who has purchased a homeowner insurance policy is required to pay from personal funds towards a loss or damages before his insurance company is going to pay for a claim.
Deductibles are not paid to the insurance company in the same way a bill or a premium is paid. The way this works is that if the policyholder files a claim and it’s covered, the deductible will be subtracted from the amount of money the policyholder claimed. For instance, let’s say that you have a $1,000 deductible and you file a claim for $20,000. This means that the insurance company is going to pay you $19,000 for that claim.
In general, there are 2 kinds of deductibles: a percentage-based deductible and a dollar amount deductible and the way they differ from one another lies in the way they’re calculated. There are also a few nuances based on the value of your home. After it’s calculated, the homeowner is going to pay a specific amount of money for the entire duration of his policy if he ever decides to file a claim.
Choosing a Deductible for Your Policy
Homeowners should choose policies with a deductible that’s as high as they can afford, since doing so greatly reduces their monthly premium. While an increased deductible can minimize the cost of your NY home insurance premium by up to twenty percent, it doesn’t mean you should excessively raise the deductible. In fact, what you’re doing when you choose a deductible is that you balance the long-term cost of your premiums and your deductible (the short term cost).
If you want to save money in the long term, then you need to opt for a higher deductible. For instance, you’d have to pay more towards your policy that comes with a $500 dollar deductible compared to a $1000 dollar deductible and that’s because you have chosen to assume a greater financial risk.
There are, of course, a few other reasons why increasing your deductible makes sense. While every insurer out there is different, in general, when you file a claim, the cost of your premium is always going to go up and that’s because you’ve become a costlier and riskier homeowner to insure. This means that the more claims you file, the higher your premiums. Because of that, there are cases in which even if you do have a low deductible, filing a claim may not be in your best financial interest.
For instance, let’s say that you have a 500 dollars home insurance deductible in the State of New York. If rain or snowfall damages your roof and it costs 1000 dollars to fix it, then you should not file a claim if fixing the roof is something you can easily afford. Sure, you could file a claim with your insurer and have them pay for it, but only at the cost of a higher premium. Keep in mind that the increase may be large or small, based on the amount you claim and the previous claims you may have filed. Homeowners filing multiple claims may see an increase in their monthly premium of up to 25 percent or even more.
Therefore, if your home is slightly damaged and you can afford to pay for those damages out of pocket, you should certainly lower your monthly premiums and raise your deductible. If no claims are made in a period of 3 years, then your insurer may consider lowering your premium rate.
It’s important to bear in mind that a lot of insurance companies offer one-time discounts to clients who’ve never filed a home insurance claim. These discounts may, in some cases, reduce the cost of a regular policy anywhere from five to twenty percent based on the insurer. On the other hand, you can negate the discount by filing a claim, in which case your premium is going to increase.
It’s also a good idea to keep in mind your available or emergency funds and focus on paying your deductible. Your rates may drop if you raise it, but doing so at the cost of financial stress is not recommended. To better deal with unpredictable circumstances, everyone is encouraged to have a liquid emergency fund they can tap into when needed. In this case, a home insurance deductible may be just what you need, so that’s why before choosing a deductible, keep in mind what you’ve saved for an emergency. However, make sure that your deductible doesn’t fully wipe out the savings you have set aside for unpredictable circumstances.
Emergency funds may also be required when having to file a home insurance claim. For instance, let’s say that half or your home is destroyed by a tornado or a fire and you cannot inhabit it. The majority of NY home insurance policies also come with extra living expense coverage to help with restaurant meals, hotel bills and other types of expenses. But what if you require cash for other emergencies or you reach your limits for those specific types of expenses? When that happens and your deductible eats up all your emergency savings, it’s possible that you won’t have the necessary funds to cover those expenses.
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How To Choose a Deductible for Your Homeowners Insurance