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Did you know that an easy way to reduce your home insurance premium is to increase your policy deductible?
Up until recently, most home insurance companies did not provide enough of an incentive to encourage higher deductibles. For example, if the premium at a $500 deductible was $2,000; the premium at a $1,000 was $1,980. Saving $20 in premium may not be worth assuming a greater share of the risk (in this case $500 in out-of-pocket costs) in the event of a covered loss.
Now that’s changed. Most companies have increased their premium credits to make it worthwhile to consider higher deductibles and in the process, have reduced the frequency of smaller claims, which will help hold the line on premiums.
At Bensman Risk Management we help our clients measure the "break even" point to determine if and when a higher deductible is recommended.
For example: Suppose your annual home insurance premium at a $1,000 deductible is $2,800. At a $2,500 deductible, your cost is reduced to $2,300, and at a $5,000 deductible, your cost is further reduced to $2,000. Take the amount of out-of-pocket cost at the next-highest deductible and divide it by the premium savings. The result is the number of years it would take for the premium savings to equal the increased
out-of-pocket costs. In the example above, it would take 3 years of loss-free coverage to justify the $2,500 deductible and 5 years of loss-free coverage to justify the $5,000 deductible.
If the "break even" period is 5 years or less, we usually recommend increasing the deductible in exchange for the cost savings providing our client has the ability to pay the higher out-of-pocket costs. Again, in the example above, we would recommend increasing the deductible to $2,500 at a minimum. The $5,000 deductible would be discussed, but the client's tolerance for the higher out-of-pocket costs would be considered in the ultimate decision.
If you feel that a higher deductible is something you’d like to learn more about, please contact me by phone or email and I’d be happy to explore the options with you.
All the best,