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Insurance 101: Understanding Your Deductibles

by Posted in Auto Insurance, Homeowners Insurance Tagged , , ,

The high cost of home and auto insurance in Florida has us all thinking about ways to save money on policy premiums. While many factors are beyond your control, one that may help save money is your policy deductible. Generally, a higher deductible means lower premiums. A lower deductible means your premiums will be higher. You’ll have to decide which makes better financial sense for your situation.

Let’s talk about what a deductible is, and how it works with your home and auto insurance.

What is a deductible?

A deductible is the amount of money you’ll pay out of pocket before your insurance takes over when you have a claim. When you have an insured loss, the deductible is subtracted (or “deducted”) from the amount of money your insurance company will pay to settle your claim. If you have a loss that doesn’t reach the amount of your deductible, you won’t be able to make a claim.

In home and auto insurance, there are two types of deductibles:

  1. A flat dollar amount. A $500 deductible on the comp/collision coverage of your auto policy is an example of this type of deductible.
  2. A percentage-based amount. This type of deductible is usually found on a homeowners policy. The percentage is calculated based on the home’s insured value. For example, you have a two percent deductible, and your home is insured for $500,000. If your home is destroyed, your deductible would be $10,000.

In hurricane-prone states such as Florida, a special hurricane deductible also applies only to damage and claims from storms categorized as hurricanes by the National Weather Service. Homeowners insurance companies decide on what will “trigger” the hurricane deductible—usually when the National Weather Service officially names a storm or declares a hurricane watch or warning. A hurricane deductible is usually between one and five percent of your home’s insured value.

With auto and homeowners insurance, your deductible applies each time you make a claim. An exception might be your hurricane deductible, which may only apply once per hurricane season. Check your insurance policy for details.

Insurance is intended to help you financially in the event of a loss that is too big for you to handle by yourself. It’s important to note that making frequent claims on your homeowners or car insurance will not only result in higher premiums—it may also get your policy cancelled or non-renewed.

What to consider before raising your deductible

While it’s tempting to raise your deductible to save money on your insurance, remember that you’ll be paying more out of pocket if you have a claim. Will you be able to make necessary repairs with a higher deductible? If you do raise your deductible, consider setting aside money to cover it if you have a loss.

Do you need home or auto insurance?

Helping you with your insurance needs, including helping you decide what deductible is right for you, is just what L & M Insurance Group is here for. L & M Insurance Group is a locally owned, independent insurance agency serving Tampa, Brandon, Riverview, Valrico, and surrounding communities. If you need a home or auto insurance policy, call (813) 672-4100 to speak to an agent, or contact us online.

Shopping for Homeowners Insurance? Don’t Cut Corners!

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Your home is your most valuable asset, and you want to be sure you’re covered financially if it’s damaged or destroyed. When shopping for homeowners insurance, make sure your policy’s coverages and limits are adequate and appropriate for your situation. We’ve noticed that some agents cut corners on coverage just to sell you a policy, without regard for what you really need.

Homeowners Insurance Brandon Florida

When you call for a homeowners quote, here are six questions you should ask:

Will my home and belongings be covered for replacement cost or actual cash value?

Actual cash value is the cost to repair your home or replace your belongings, less a deduction for a decrease in value due to age, wear and tear, and other factors. Replacement cost is the actual cost to repair or replace your property with items of equivalent quality and kind at current market value. For example, if you have a kitchen fire that destroys your appliances, with replacement cost, you’ll receive enough money to buy new appliances. If you have actual cash value, you’ll receive a lesser amount due to the depreciation of your destroyed items. Replacement cost usually costs a little more than actual cash value, but we think it’s well worth the investment.

Does this policy cover water back up?

A standard homeowners policy usually covers damage from overflow of water from plumbing, heating, or air conditioning as long as it originates on your property. However, if the back up damage comes from outside of your property, such as if heavy rains cause a sewer back up into your home, you may not be covered. This is a scenario all too common in our hurricane-prone state. (Please note: water back up coverage is NOT the same as flood insurance.)

How much is my home insured for?

Make sure the policy you’re being quoted is for the full replacement cost of your home—not the property’s market value or the amount you paid for the property. We’re seeing quotes from other agents where the home’s structure is severely under insured, which could lead to future claims only being partially paid, or if you have a total loss, leaving you without enough to rebuild.

What are the liability limits of this policy?

Liability protects you from lawsuits for injury or property damage you do to someone else. Most homeowners policies carry a minimum of $100,00 worth of liability insurance, but many insurance experts feel this is inadequate, and recommend coverage of at least $300,000 to $500,000. The price difference of raising your limits can be as low as $20 a year.

How much coverage is there for my home’s contents?

Most homeowners policies cover your personal belongings at a percentage (usually 50-70%) of the amount your dwelling is insured for. So if your home is insured for $200,00, and your policy covers contents at 50%, your contents are insured for $100,000 if there is a total loss. Some agents may try quoting 25% coverage or even no contents coverage at all to bring the policy’s price down, but you don’t want to risk this.

Does this policy have a hurricane deductible or a wind/hail deductible and how much is it?

Storms occur frequently in Florida, so always ask what deductible you have for a hurricane loss. If it is a percentage, ask what that equates to in dollars so you’ll know your out-of-pocket cost in the event of a hurricane loss. If possible, you want to avoid the broader “wind/hail” deductible since most storms that could damage your home are not hurricanes.

Homeowners insurance in Florida is not cheap, and while you don’t want to pay too much for a policy, don’t make the mistake of underinsuring your most valuable asset. Beware of agents who quote you a low rate just to get your business rather than watching out for your best interests. At L&M Insurance, we have years of experience in the Florida homeowners insurance market, and we will do our best to serve you. Please contact us today for a free quote, or if you have any questions about your homeowners policy.