Choosing Your Deductible

From Insurance for Dummies by Jack Hungelmann

The usual deductible that comes with a Homeowners policy is $250 per claim. Most insurers allow you to increase the deductible to $500, $1,000, or more, in exchange for a lower premium. When deciding how big a deductible to carry, use three criteria:

• How much can you comfortably afford, financially, out of cash reserves?
• How much can you emotionally afford? ( If parting with that much of a deductible would bring on tears, it’s too high!)
• How much premium credit are you receiving for taking the extra risk?

Tip. It’s been my experience that the average home property claim occurs once every seven to ten years. My advice is to pick the deductible that has a seven- or eight-year payback period. You determine that by dividing the extra risk of a higher deductible by the annual savings. If you can recoup, in premium savings, the added risk in eight years or less, pick the higher deductible. Remember the payback period is the result of dividing the difference in deductibles by the difference in premiums.

Documenting your claim
Suppose your house burns to the ground. Along with every shred of your belongings. Or suppose you come home to an empty house after that cheap “moving company” steals most of your furniture. What do you do?

“No problem” you say. “I read Insurance For Dummies and I bought all the right coverages. The Replacement Cost on building and contents. The Home Replacement Guarantee. The Special Causes-of-loss Form. I’m set.”

The insurance adjuster comes to your door and the first thing she does is compliment you on the brilliant design of your insurance coverage: “My, you have a wonderful insurance plan! How did you learn how to plug all those gaps in our insurance policy?” You grin and share your ...For Dummies secret. (She quickly calls her supervisor and urges the insurance company to buy up the remaining supply of books so that this can’t happen again!)

Her day is ruined. For once, she’s cornered and has to pay the entire claim without penalty. Then, a smile comes over her face as she remembers her secret weapon — hidden in the fine print of the policy is the requirement that you have to prove what you lost, and that any property you forget to claim, she won’t have to pay you for. “You don’t happen to have records of everything that you own, do you?” she asks. How would you respond, right now, as you read this? Don’t feel bad. Few people have adequate documentation of their loss at the time of a major claim.

Tip. Here are some easy ways of documenting your home and its contents. Keep these records off-premises so they aren’t lost in a fire.

• Have photos of the exterior of the house and any detached structures.
• Have photos of any special structural features in the interior, like stone fireplaces, built-in buffets, custom woodwork, and so on.
• Have a photographic inventory of all your personal property. Take pictures of every cupboard and closet with the drawers open. Don’t forget storage areas, the basement, and property in garages and other structures. ( Photos can be video or still. The video is simpler, cheaper, and easier to update.)
• Keep your home blueprints, if you have any. They are wonderful for making sure you get exactly the house you had. ( It wouldn’t hurt to put a copy of your home appraisal with the blueprints.) Without documentation, even great coverage won’t get you an easy — or full — claim settlement.