A Guide to Your Homeowners Insurance Deductibles in CA

Understanding homeowners insurance deductibles is essential in selecting maximum coverage at the lowest possible cost in California. Why do you need a policy deductible in the first place? You might also be wondering, which one is the better option between the lowest and highest deductible? In this guide, we’ll demystify the term “deductibles” to help you make informed choices whenever you’re shopping for insurance coverage.

Your Insurance Deductibles Aren’t Paid to the Insurer

Contrary to a common belief, a deductible isn’t an amount a policyholder pays to their insurance company. For example, in homeowners insurance, a deductible is the money you’d spend out of pocket to rebuild or repair your damaged home, with your insurer paying the remainder of the replacement claim.

If you had a $1,000 policy deductible and filed a covered replacement cost claim worth $3,000 for roof damage, your insurer would only pay out $2,000. You’d be liable for the remaining $1000 required to fix the damaged roof. Deductibles allow insurers to share liability with policyholders. Therefore, the amount you agree to pay out of pocket to pay for a covered loss never ends up in your insurance company’s bank account.

Choosing Higher Deductibles May Lower Your Insurance Premiums

Most insurers will generally let you pay lower premiums if you select a higher deductible. Also, low deductibles on certain policies may attract additional charges. Does this mean potential insurance premium savings are always worth the sacrifice of paying higher deductibles? Sometimes this isn’t the case, depending on the type of policy in question and the discounts incorporated into its pricing plans.

Take the example of a large business insurance policy that lets the policyholder save $3,000 on premiums annually if they choose a $5,000 deductible. If in two years, the business doesn’t suffer a covered loss that forces it to spend the $5000 out of pocket, it will have accumulated premium savings totaling $6000, which is $1000 more than the selected higher deductible. For a large enterprise with high-value assets to insure, this makes perfect sense.

However, with policies like homeowners insurance, you might be better off choosing a lower deductible, even if it’ll increase your premium. That’s because you might only save as little as $25 per year if you take a higher $1,000 deductible instead of a lower $250 deductible option, for example. For your annual premium savings to make sense, you’d have to go more than 30 years without spending $1,000 out of pocket to pay for a covered loss.

Why Homeowners Insurance Companies Require Deductibles

Having a homeowners insurance deductible is a win-win for both the policyholder and their insurance company. It serves different purposes, including:

● By assigning you a portion of the covered risk, a deductible encourages you to always act in good faith and do your best to protect and maintain the insured property. For instance, there could be a natural lack of incentive to maintain or update your insured primary dwelling if you wouldn’t be partially liable for the cost of fixing or rebuilding it after a covered hazard occurred.

● Deductibles help protect insurance companies’ financial interests by covering minor, maintenance types of losses that the policyholder can (and should) avoid by adopting best practices for property management and maintenance.

Understanding your insurance deductibles when shopping for a homeowners policy entails figuring out the potential savings that each deductible option offers. Then, compare the savings with your unique financial situation and objectives.

If you need any assistance in comparing your available policy options, maximizing insurance protection, and minimizing premium costs, contact the experts at Burton A. Harris Insurance Agency in California today. We’re eager to help you select sufficient home insurance coverage that includes an appropriate deductible.