In its most basic form, the idea of homeowners insurance is generally a matter of financial protection for perils such as fire, theft, storm damage and other hazards. Homeowners insurance also protects you financially from liability resulting from someone who was injured on your property.
The homeowner's policy typically provides coverage for the building and for the contents, or what is essentially your personal property within the limits of the policy you select.
Once the insurer has reviewed your property based on its location, the availability and effectiveness of fir protection, the limits requested for the value of the home and the value of its contents, a premium, or annual fee, is established.
The typical homeowners policy, along with stating what is and what is not covered, allows the homeowner to share in the risk of insuring the property by the amount of the deductible the owner is willing to pay when a claim is made.
The deductible is important because it affects how much the policy payment will be, whether annual, twice a year or monthly. The larger the deductible, the lower the cost of the policy since the homeowner is willing to share the risk in insuring the property to a greater or lesser degree.
Here are examples of two types of homes and on both sides of the Georgia-South Carolina line:
- In the city of Augusta, the first home is of frame construction, 7 years old, the property value is about $100,000, and the deductible is $500. The annual premium could be about $571. By raising the deductible to $1,000, the premium could be reduced to $492. Increasing the deductible to $2,000 could bring the payment down to $420.
- Also in Augusta, the second home is valued at $350,000, also frame construction and also 7 years old. With $500 deductible, the annual premium could be about $1,432. Increasing the deductible to $1,000 reduces this estimate to $1,233, and by increasing the deductible to $2,000 reduces the estimate to $1,048.
- In North Augusta, the annual premium on the same type of $100,000 home with a $500 deductible could be about $631. Increasing the deductible to $1,000 brings down this estimate to $555, and increasing the deductible to $2,000 reduces the estimate to $490.
- In North Augusta, a $350,000 home with a $500 deductible could have a premium of about $1,683, but with a $1,000 deductible, this estimate is reduced to $1,465. The $2,000 deductible brings the estimate down to $1,294.
What does this mean? A homeowner can take on additional risk and save money on an annual basis. There is a caution to consider.
The savings, or at least a portion of the savings, should be set aside until there is enough to cover the cost of the deductible. On average, the insurance industry says a homeowners claim is made once every 10 years, but saving the month up front allow the homeowner to draw interest on the savings and provides the cushion should a claim be made.
The same principle of increased deductible to lower annual payment holds true with automobile insurance as well. And don't forget to ask about all applicable discounts from any insurer.
DAVID COLMANS IS THE EXECUTIVE DIRECTOR OF THE GEORGIA INSURANCE INFORMATION SERVICE, A NONPROFIT TRADE ASSOCIATION OF PROPERTY AND CASUALTY INSURANCE COMPANIES THAT DO BUSINESS IN GEORGIA. LEARN MORE AT WWW.GIIS.ORG.