Higher Home Insurance Deductibles Earn Lower Rates

What's the best deductible for home insurance? 

The highest deductible for homeowners insurance can be as much as $25,000 (with my insurance company anyway). Before your eyes light up with dollar sign savings potential, know that $25k is a lot of money to pay out in claim

When you own a home, you’re at risk for disasters that could potentially leave you homeless and bankrupt. It can cost tens of thousands of dollars to replace your valuables after a burglary. And it can easily cost a million dollars to clean up the mess and rebuild a home after a fire.

Homeowners also take on a fair amount of risk for smaller events that are expensive but not life changing. If a dangerous storm damages your roof, it might cost you a few thousand dollars to repair it. If a tree falls on a fence, the cost of cleanup and repair might cost about the same.

Home insurance could pay for these expenses. But events like these which are expensive but not life-changing, happen frequently.

Suppose your home insurance deductible is $10,000. In that case, it’s not worth it to call them for smaller expenses because you are going to be paying the first $10,000 yourself anyway.

Knowing they don’t have to worry about small claims for common mishaps is why your insurance company lowers their price when you choose a higher deductible.

Just make sure you can afford it. And not with your home equity line of credit, but in cash. One idea is to have your deductible amount set aside in a high-interest savings account. 

Think of it this way: if you save $100 a month in a high-interest savings account, it will take you less than two years to save $2,000 for emergencies requiring a deductible of that amount. However, if you spend that money on an insurance policy instead, that money is gone.

Waivers of deductible

Some home insurance policies will waive the cost of your deductible under certain conditions, like if your claim hits a dollar value limit, you don't have to pay it. Speak with your insurance company about it. 

Why is my home insurance deductible so high?

If you can't afford your deductible, you can always reduce it. However, weigh the cost savings because your premiums will likely go up. 

What’s more, every time you make a claim, your home insurance rates can go up – even if you switch to a different insurer. So it’s best to avoid making home insurance claims for smaller costs anyway.

If there is a major disaster like a fire, a large deductible might be a tough pill to swallow. However, it’s still a small amount compared to the overall cost your insurance company picks up. And the chances of a fire happening, while not zero, are small. Statistics Canada says there are around 12,000 residential fires, most of which are relatively minor, each year in Canada, and more than 14 million private dwellings.

It’s well worth choosing the higher deductible when your probability of needing to make a claim and pay the deductible is less than 1 in 1,000.  Be sure to have the money set aside or available in a home equity line of credit.

The bottom line

Your home is likely the largest investment you’ll ever make, and home insurance protects that investment in the event of a disaster. When hundreds of thousands of dollars are on the line, damage from a fire or significant storm is likely to bankrupt most Canadian homeowners.

With insurance, you’re far less likely to be financially ruined should disaster strike. And because the probability of losing your home in a fire is so overwhelmingly low, it’s worth it to choose a higher deductible.

In fact, next to comparing home insurance quotes to make sure you’re getting the best deal for the coverage you need, choosing a higher deductible is the best way to save money on home insurance.

 

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