One of the components to decide on when you get yourself a home insurance policy, is the amount of deductible you are willing to pay. Every insurance policy will have a deductible so each and every person who gets a home insurance has to take this decision at some point of time. In order to decide on the deductible one should understand what it is and how it works?
What is a home insurance deductible?
Your home insurance deductible is the amount of money a policyholder has to pay out of their pocket in the event of filing a claim. You do not need to pay this amount to the insurance company, the company simply deducts this amount from the claim you file and pays the balance as claim. So, suppose you have a home insurance deductible of $1000 and you file a claim of $10,000; then the insurance company will pay a full and final sum of $9,000 against the claim. There are two types of deductibles, dollar amount based and percentage based. The difference between the two gives you the deductible component. Other factors that are taken into consideration are the value of your home, among others.
How to choose the right deductible?
Choosing a high deductible reduces the percentage of premium you pay on your policy. The premiums can lessen by as much as 20 percent, which seems extremely appealing. But care should be taken to see that you can comfortably bear the deductible you choose. You should not set a high deductible just to decrease your premiums. Premiums on policy are your long term financial commitment against the deductible which is short term cost. You should set your deductible in a way to comfortably balance the two components without putting too much pressure on either one of them.
Insurance companies encourage homeowners to take up high deductibles as it decreases the risk factor for insurance companies and also the amount of administrative overhead involved in each claim. Another reason why insurance companies prefer higher deductibles is because it ensures that the policyholder can pay certain damages out of his own pocket instead of filing a claim for the same. The more the number of claims you make, higher is the cost of premiums. So it is anyways advisable to foot small damages out of your own pocket instead of filing claims for them.
Finally, you should remember the more you afford, in terms of a deductible, in the short term; the more you will save from your premiums in the long term.
