Should you increase your insurance deductible? Cary NC

Most financial experts agree that increasing the deductible on your homeowner’s insurance policy is a good strategy. The higher the deductible on your policy, the lower the premium for your homeowner’s insurance. Another way of looking at it is that the more risk you take on, the less your home insurance will cost.

The deductible is the dollar amount of losses or damages that you, the policyholder, pay before the insurance company starts paying – the amount that is your responsibility to pay on any claim. For example, if you make a claim that your insurer accepts for $5,000, and your deductible is $250, the insurance company will pay $4,750.

The deductible should not be confused with the premium. An insurance policy’s premium is the amount you pay to keep the policy in force.

Many policies have deductibles of $250. Experts say that by increasing this deductible to $500, you can usually save 10 percent on your premiums. By increasing the deductible to $1,000, you may be able to double your savings.

Deductibles and potential savings:

Increase your deductible from $250 to:

• $500 and you could save 10 to 12 percent
• $1,000 and you could save 20 to 25 percent
• $2,500 and you could save as much as 30 percent
• $5,000 and you could save as much as 37 percent

Of course, if you are considering increasing your deductible, you must be able to afford to pay the higher deductible should you make a claim. The purpose of homeowner’s insurance is to safeguard you in case of an unforeseen event that damages your home or its contents. If your deductible is too high, it could negate the benefits of having insurance in the first place because the risk you are assuming is too great.

For most people, though, insurance is for serious losses and it’s worth it to have a higher deductible and pay relatively small claims. Why? Whenever you make a claim, it affects your risk profile and your premium will increase. Avoiding asking your insurer to pay small claims – maintaining a perfect no-claim record – keeps your premiums low and makes renewing your policy easier. The idea is you only use your insurance for a major claim that you couldn’t possibly cope with.

If you opt to increase your deductible, consider using some of your premium savings to safeguard your home and possessions. Invest in improving the security of your home by adding such things as a smoke detector. Often, this kind of improvement makes you eligible for a discount on the cost of your policy.

You should also check to see if your insurance company is giving you a competitive reduction on your premium for a higher deductible. It’s an important question to ask. You can use the bullet points above as a rough guide to the premium reduction you should get, assuming nothing else in your policy changes. But you should do the math or have an insurance company’s sales rep do it for you.

The flip side of your deductible is the coverage limit of your policy. It is the maximum the insurer will pay for what is insured. Like increasing the deductible, lowering the coverage limit will reduce premiums. But you should make sure that a lower coverage limit adequately protects your home and contents.

Sometimes a deductible is built into your policy that you are unable to change. For example, hurricane deductibles on homeowner’s insurance have become more common and have increased in size during the last few years. Usually they are not dollar amounts but percentages of a home’s insured value.