If you plan to purchase a Colorado home, you may already understand the critical importance of insuring that major investment. Home insurance can minimize the financial losses created by burglary, vandalism, house fires, hail damage, and other catastrophes. Even so, you will probably have to pay a deductible.
The more you understand how these deductibles work, what they may cover, and how they affect your monthly premiums, the more easily you can select an insurance policy that best suits both your budget and your assets. Take a look at five key points about home insurance deductibles.
1. Definition of a Deductible
Insurance professionals define a deductible as the amount insured parties must pay in a covered incident before the coverage itself actually kicks in. Home, commercial, vehicle, and health insurance policies typically include deductibles as part of their terms. The insurance company pays the remainder of the claim.
Insurance holders usually pay a single deductible for each separate claim. However, that claim may (and often does) include multiple kinds of property losses. For instance, if you lose your home, your garage, and your personal possessions in the same incident, you need only file one claim to collect on all of those losses.
2. Principal Types of Deductibles
Different types of home insurance coverage calculate the associated deductibles in different ways. The majority of simple home insurance policies employ flat deductible rates. A flat deductible policy allows you to select a fixed dollar amount that you'd feel comfortable paying in the event of property theft or home damage.
Some insurance policies that protect homeowners against storm damage may include a deductible based on a certain percentage of the property value as insured. If you insured your home at a deductible of two percent, for instance, you must pay the first two percent of your home's total insured value.
You may find a policy that combines both of these approaches to deductibles. A policy with a split deductible may set a flat deductible rate for relatively common, straightforward damages such as theft or electrical fires, reserving percentage-based deductibles for rarer problems such as natural disasters.
3. Separate Deductibles for Specialized Coverage
Not all forms of home damage or property loss fall under the scope of a standard homeowner's insurance policy. For instance, a typical homeowner's policy should cover losses caused by wildfires, hail, strong winds, and hurricanes. However, certain other kinds of disasters call for separate coverage that includes its own deductible.
Flood insurance counts as one type of additional coverage that Colorado homeowners should consider. Wildfires commonly devastate large areas of land in the state each year, with the destruction of foliage setting the stage for floods to roll across the bare terrain. FEMA notes that a single inch of floodwater can do $25,000 in home damage.
Since floods may follow fires in the scenario mentioned above, the one-two punch of destruction could require the payment of two separate deductibles. Even if the flood occurred as a direct result of the fire, you would still end up filing two different claims if you sustained damage from each incident on two different occasions.
4. Deductible Waivers
Under certain circumstances, you may qualify for a waiver of the deductible amount you'd normally bear responsibility for in a claim. The possible factors that might lead to a deductible waiver include large losses, ongoing reductions in the deductible amount, and the consolidation of multiple policies.
When shopping for homeowner's insurance, ask about the option of a large loss waiver. This feature could free you from your deductible burden if your claim exceeds a set level. You should also find out whether a combined deductible on your home, auto, and other insurance coverage makes you eligible for any future waivers.
In a policy that features a disappearing deductible, your deductible level may drop by a set percentage periodically based on your good payment record and loyalty as a customer. Eventually, your deductible burden could completely zero out. However, you'll probably pay more upfront for this option.
5. Deductible Amounts
A standard homeowner's insurance policy typically includes a minimum deductible level of $500 to $1,000. This entry-level coverage appeals to individuals and couples who own exceptionally expensive homes that contain items of great financial value, and to people who reside in areas especially vulnerable to damaging conditions.
The higher your deductible, the more financial pain you'll feel when you have to repair or replace your covered property. However, a higher deductible also means a lower monthly premium. If you need to maintain your coverage while on a tight budget, a higher deductible may make more sense for your particular situation.
When balancing your premium versus your deductible, you must weigh the monthly or annual burden of those premium payments against the amount of trouble you'd encounter if you faced a total property loss. Your insurance agent can discuss these concerns with you and guide you toward the most sensible solution.
Now that you have a clearer picture of the roles deductibles play in your home insurance coverage and payments, it's time to contact a skilled insurance expert at L.A. Insurance. We can go over your available options, recommend specific products, and make sure your policy includes a deductible you can live with.