Most people pay their homeowner’s insurance through their mortgage company. So, when they get the renewal notice in the mail, they usually don’t even read it and toss it in the wastebasket, said Mike Miller, owner of Red One Insurance in Omaha.
“But they definitely should analyze it to see what their deductible is and how much they would have to pay out-of-pocket if a claim was filed,” he says.
Like any other insurance deductible, you have to participate in the claim up to a certain amount. Anything below that amount, the insurance company doesn’t pay. For instance, if you have a $2,000 deductible and put in a claim for a $20,000 roof because of hail damage, you would pay $2,000 and the insurance company would pay the remainder.
Some people do get confused though about deductibles. They think that once they hit their deductible – like in medical insurance – that they won’t have to pay another deductible if they have two claims in one year. That’s not how it works in homeowner’s insurance, Miller says. Each claim is handled individually, and you’d pay a deductible for each claim separately.
Type of deductible is changing
Miller says things are changing in the homeowner’s insurance world. In the past three to five years, some carriers are changing from old school flat deductible such as $500 to $1,500 to percentages.
“It’s the new way. The reason is that insurance companies are trying to mitigate their losses. They can either increase premiums or increase deductibles just like health insurance companies have been doing.
Covering roofs is changing
Some companies are also changing the way they cover roofs, from full replacement to actual cash value (depreciation). Miller said that in Nebraska, and probably throughout the country, All State is ending its full replacement for roofs up to 8-10 years old. Once the roof is over that certain age, they depreciate what they will pay to replace it. For instance, that means you not only pay the deductible, but you also have depreciation of 30, 40 or up to 50 percent.
A roofer shows up and says the bill will be $15,000. Most people think it will only cost them their deductible. But now, if the roof is 10 years old, they will also pay 30 percent of the rest of the bill.
“When you think about it like car insurance, it’s probably the way insurance should work,” he says. “Insurance has always been such a competitive business. But insurance companies have tried to one up each other. Now, they are their own worst enemy.”
Miller always thought it was a little crazy that you could get a brand new roof that is 15 or 20 years old by just paying the deductible because of a hail storm.
Understanding percentage deductibles
In Nebraska, some of the biggest carriers are starting to do percentage deductibles. It’s a new phenomenon that will probably increase, Miller says.
How it works it that if you have a 1 percent deductible, that means if you have a 2 percent deductible on a $400,000 house, you will pay $8,000 for a $30,000 roof.
You can’t find $500 deductibles anymore, Miller says. For instance, Progressive has a low $1,000 deductible but Travelers has a $1,500 minimum deductible on homeowner’s insurance. Miller suggest getting the lowest one possible even if it increases your premium.
“You probably are not saving a measurable amount if you went from $1,000 to $1,500 deductible. If you can save $100 a year on your premiums, that’s probably all. Your breakeven would take 7-10 years out,” he explains.
Type of roof matters to insurance companies for deductibles
Miller has seen insurance companies use very high percentage deductibles for people with wood shaker or cedar shaker shingles. They are much more expensive to replace. And it’s even tough to find an insurance company that will eve insure roofs like that.
“It comes down to how impervious roofs are to hail. That’s what matters to insurance companies. With good metal shingles, you will be able to have less of a deductible,” he says.
Insurance costs going up
“Every year, insurance companies will increase your homeowner’s insurance by 3 to 4 percent to keep up with inflation. If that number increases, your out-of-pocket cost will increase,” he says. It’s just something to know when it comes to your finances.
If you are in Omaha, your homeowner’s insurance goes up 10 to 15 percent each year because of all the hail damage that happens in the city and surrounding area.
“I have a client in Omaha, he pays $1200 a year for his homeowner’s insurance for a $200,000 home, which is a very new house. He has great credit. But he’s moving to Minneapolis and buying a $345,000 house and his homeowner’s insurance will only be $550. Apparently, it doesn’t hail much in Minneapolis,” he said.
Omaha has already seen several insurance companies exit the state because they are losing so much money on major storms. Major hail storms can be catastrophic to an insurance company. They lost billions of dollars in profits.
“Homeowner’s insurance policies used to be the easiest to write. But because of the possibility of hail storms, they are the most difficult now,” Miller says.
When should you file a claim depending on your deductible ?
Certain claims you don’t want an insurance company to know about – everything except for weather-related claims. If you can pay out of pocket, you may want to consider it.
For instance, he had a client had two hail claims in one year with State Farm. He got a letter saying the company wasn’t going to renew their policy.
“It doesn’t matter if you were insured with that company for 30 years. They don’t care,” he says. “If you have two claims in five years, you won’t get renewed. The company runs the numbers, and they feel that client is more likely to have a third claim. That’s a risk they don’t want to deal with.”
How can a homeowner easily figure out the deductible they want?
First, ask about availability of the type of deductibles. Ask about the lowest deducible you can get and the premium difference for the next level up on the deductibles. Then, ask yourself, as a homeowner, what amount of money you can sustain if something happens. Figure out if it would make that big of a difference in your life is you had to pay either a $1,000 or $2,000 deducible.
When should you raise your deductible or even lower it?
Lower it when you can, Miller says. Raise it only if you need to save money on the premium.