I want to take a moment to cover a few coverages on homeowners insurance. The market has changed the last few years and as a consumer you need to adjust your plan to optimize the coverages to your advantage.
The days of carrying a $500 deductible in most cases no longer make sense for a large number of homeowners. Carriers have raised the premiums on this deductible because they want to encourage homeowners to take the higher deductibles. Depending on my clients financial situation, if they can absorb the higher deductible at the time of claim I highly recommend the higher deductible as well.
Let’s look at the $1,000 deductible – in today’s market, the $1,000 deductible bring a more affordable premium. While it isn’t a large savings it makes more sense to retain more deductible to save a few dollars. Typically, homeowners claims are not frequent events. The client can save the premium and bank it to cover the larger deductible if a claim occurs. Most homeowners typically don’t file claims under $2,000 so this strategy usually is good for the clients.
The $2,500 Deductible – this is a bit steeper but the savings are much more than those associated with the lower tier deductibles. This is becoming a more common option for more and more clients. The $2500 deductible is the one I like to see my clients take advantage of. The infrequency of claims provides significant savings over time and can be used to purchase for better coverages such as a lower wind deductible, potentially adding a personal $1 million dollar umbrella or just enhance your overall savings.
The Wind Deductible – every policy has a wind deductible. Typically the deductible is a percentage of the dwelling coverage replacement cost. The carriers vary as to the offering but they usually offer 2,3,4 or 5% deductibles. The average homeowner today carries a 5% deductible. An example is if your home / dwelling is insured for a 5% and the the home is insured for $450,000 then your wind deductible is $22,500 for your out if pocket before the carrier is responsible for the damages. I don’t know many homeowners who have $22,500 readily available for a wind claim.
My advice to my homeowners is the following when we are providing a professional review of their current homeowners policy:
1) We must make sure we have the dwelling insured for the proper replacement cost. Many clients buy their policy at the time of the purchase and never do an annual review. They quickly become underinsured or over insured within a few short years.
2) We provide quotes for the current deductible so that we can compare the two plans. The next step is we would present the $2,500 all peril deductible. As we already know will create a significant savings.
3) The recommendation is to take the $2,500 deductible and illustrate this with a wind deductible of 2%. In this case a $450,000 replacement cost would then provide a wind deductible would bring the deductible down to $9,000 compared to 5% or $22,500.
Net net the increase from your current $500 or $1,000 all peril deductible to a $2,500 all peril deductible and dropping the 5% wind deductible to a 2% wind deductible, potentially saves you money during the policy year and creates a major savings for your out of pocket deductible in case of a claim resulting from a wind storm. In the case above it would save you $13,500 in out of pocket deductible on a wind storm claim with the 2% wind deductible.
If you have any questions or would like to have us review your current homeowners policy you can e mail me (Michael J Fusco) at email@example.com
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