A homeowners insurance claims standard deductible is the amount the homeowners have to pay before the insurance pays for the rest of the damage. Generally, a low deductible means high premiums, and a high deductible means relatively lower premiums.
The deductible is separate from the premium. The premium is the amount paid to purchase insurance. For example, if someone buys insurance on a $120,000 home for $1500 a year, the $1500 is their premium. If the plan has a deductible, they must pay that before the insurance policy will cover the damage.
Take our example of the $120,000 home: Say that home has an electrical fire doing $15,000 worth of damage. A policyholder with a $500 deductible plan will have to pay that $500 before the insurance covers the $14,500 left. If they have a $1000 deductible plan, they’ll have to pay that $1000 before the insurance covers the $14,000 left.
If the amount required to fix the damage is less than the deductible, the homeowners insurance claims will not cover it at all. Example: A homeowner has a $1000 standard deductible on their plan. While mowing, the blades of the mower kick a rock through their glass front door. Replacing the door costs $350. Because the deductible is the minimum amount that a homeowner will have to pay, and $350 is less than the $1000 deductible, the homeowners insurance is not required to cover the damage and the entire cost will come out of the homeowners pocket.
Deductible vs. Premium
Deductibles and premiums usually have an inverse relationship. This means that as one goes up, the other goes down — and vice versa. A larger deductible means that a homeowner will cover more small claims entirely out-of-pocket, so their premiums are usually lower than with a low deductible plan. Homeowners that know they’ll have to pay more out of pocket have more incentive to take good care of their homes. They will come out ahead if they make decisions and purchases that protect the home. This means the home costs less to insure, and thus insurance is cheaper, leading to lower premiums.
Liability Coverage For Homeowners Insurance Claims
One exception to this is liability coverage. A policyholder does not pay a deductible on liability coverage — these are damages that other people incur due to the homeowners property, such as medical costs due to injuries sustained.
Standard deductibles with homeowners insurance claims are generally not used when disasters like hurricanes, wind, or hail are involved — percentage deductibles are commonly used instead. Flood riders (additional coverage to a plan) can be offered with standard deductibles or percentage deductibles.
Contact Hosto Financial & Insurance Services For Help With Homeowners Insurance Claims
When considering a policy and looking at the cost of insurance, it’s important for a homeowner to remember that the higher the premium, the more they are paying someone else to insure them. The more money a homeowner can set aside to self-insure (that is, pay for damages that come up), the more they can afford to pay lower premiums. Each home and homeowner will have different circumstances, and there are no perfectly right or perfectly wrong answers. It’s advisable to take the matter up with a licensed and trustworthy insurance agent if you aren’t sure of what’s best for your situation.
If you are seeking advice about homeowners insurance claims, give us a call at (618) 779-5808.
Wondering when you should get homeowners insurance? Learn more here.