What Home Insurance Deductible Makes Sense?
The answer will depend almost entirely on the cost of your home insurance policy. Here is the very simple way I look at it and what I tell clients to consider when they’re deciding whether to go the high deductible or low deductible on their home insurance. It all boils down to how many years it takes to break even on that higher deductible.
Here’s what I mean, in very simple math. Let’s say you’re looking at two different options. You can buy a policy for $1,000 per year and the policy has a $5,000 deductible; or you can buy that same policy for $1,500 per year with a $1,000 deductible. The difference in deductibles is $4,000.
The difference in the policy cost is $500. How long do you need to without filing a claim before the amount you’re saving by going with the higher deductible covers the difference in the cost of deductible? $4,000 in increased deductible, divided by $500 in annual savings, equals an 8-year breakeven.
Personally, in the above scenario, I don’t think that the higher deductible is a very good value.
Let’s say you could buy a policy for $2,000 per year with a $5,000 deductible, or you could buy a policy for $3,000 per year with a $1,000 deductible. The difference in policy cost is $1,000 per year. In this scenario, the breakeven is only 4 years. Meaning, if you go with the higher deductible, and don’t need to file a home insurance claim in the next 4 years, you’ve made the better choice.
Claims frequency varies by region, so in some areas an 8-year time horizon may be a totally good options. In other areas, more prone to wind or hail, a shorter time horizon is going to make more sense.
You can reach Dave at 888-496-4376. He’d love to hear from you! Unless you’re not a good person… then call one of our competitors.