By Kimberly Lankford
Question: How high a deductible can I get on my homeowners insurance? If I boost my deductible, how much can I save on my premiums?
Answer: If your deductible is $500 now, increasing it to $1,000 can lower your premiums by up to 20 percent. Most insurers offer much higher deductibles, too, which is a popular strategy for people who have enough money in emergency funds to cover potential costs. Raising your deductible is a good way to reduce your premiums, and it makes you less likely to file small claims that could result in a rate hike.
At Chubb, about half of the wealthiest customers choose a deductible of $10,000 to $50,000. “For homes here in Malibu that are valued at $10 million to $25 million, having a $25,000 deductible isn’t out of the ordinary at all,” says Derek Ross, president of Kulchin Ross Insurance Services, an independent agency in Tarzana, Calif.
The higher the deductible, the bigger the premium savings. Let’s say, for example, you have a policy with Fireman’s Fund with a $1,000 deductible and a $3,000 annual premium.
You’d save about 24 percent by boosting your deductible to $2,500, 37 percent by raising it to $5,000, 47 percent by raising it to $10,000 and 53 percent by raising it to $25,000. Compare the premium savings with the extra dollar amount at risk to make sure that boosting your deductible is worthwhile.
You should file a claim only if it is at least several hundred dollars more than the deductible. “If your insurer raises your rate by 10 percent for three to five years after you have a claim, that could easily exceed the amount the insurer paid beyond the deductible,” says Ross. Whatever deductible you choose, keep enough money in an emergency fund to self-insure up to the deductible — or even a few hundred dollars more.
The risk of self-insuring may not be as high as you think. The average person files a homeowners insurance claim only once every eight to 10 years, says Jeanne Salvatore of the Insurance Information Institute. You could take the money you save in premiums and add it to your emergency fund each year so that you’re prepared when you do have a claim, recommends Ross. You could also use the extra money to boost your dwelling, property and liability coverage levels by tens of thousands of dollars.
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When buying homeowners insurance, be sure that you’re buying enough coverage to rebuild your home, if necessary. Don’t look at market prices for homes, but rather at the replacement cost for your home, which would include removing what’s left of your home, buying new building materials, and labor. “Guaranteed replacement” policies should cover the whole cost, while “replacement cost” coverage often covers less than the full amount. Check your policy to see what kind you have, and be sure that your home’s value isn’t being understated.
Also, know that in standard homeowners policies, many kinds of damage are typically excluded, such as that from earthquakes, floods, nuclear attacks. These days, mold damage is often excluded, too. If you’re worried about any excluded risks, talk to your insurer. You can probably expand your coverage, for a price. You may also get it elsewhere, such as from the FEMA-administered National Flood Insurance Program, or the California Earthquake Authority.
You may know that dental or vision-related expenses are not covered by your health care insurance, but that’s probably not all. Pre-existing conditions have long been excluded by many insurers, though President Obama’s health care reform act is addressing that. A nose job or other cosmetic surgery, for example, is most likely excluded, too, no matter how much of an emergency you think your double chin is.
Your policy may also not cover ambulance services, maternity care, prosthetics, kidney dialysis, organ transplants, diabetes management, emergency-room visits, mental-health care, and care you receive outside the United States — or any of a number of other expenses. Don’t be overly alarmed — policies vary widely, and you may be covered for many of the above costs, at least to some degree. Just be sure to find out what is and isn’t covered, and when shopping for a policy, seek out the one that fits your needs and pocketbook best.
The main reason to get renters insurance is because many possible losses renters face are excluded from their landlords’ insurance policies. If a roof leak destroys much of your collection of first-edition books, your landlord’s insurance will likely fix the roof and any damage to your apartment’s floor, but your book loss will probably be excluded. Thus, it’s smart to get renters insurance, which is often rather inexpensive, as well.
When shopping for such policies, be sure you know whether losses will be insured for their replacement cost or their current, depreciated value. (The former is, of course, preferable.) Renters policies can include or exclude coverage if a guest is injured on your premises. If you’d like that coverage, ask for it. Know that in many renters policies, damage due to natural disasters or structural damage to the building may not be covered, too. If you’re worried about those issues, including burst pipes, ask about it. You may need to add a rider to your policy.
There are coverage holes with car insurance, too. At a basic level, while most drivers carry liability coverage, many don’t carry collision coverage, which will address damage to your car. Omitting it can make sense if you’re driving a clunker that you’d just replace after an accident, but crunch some numbers before passing it up.
There are some tricky little car-insurance details, too. For example, a stolen car may not be covered if you left it running with the doors unlocked. Damage due to hitting an animal such as a deer, or damage from a lightning strike, tornado, or flood, may also be excluded or limited. Medical bills may also be off-limits unless you have medical coverage, and valuables stolen out of your car are also often excluded. (They may be covered via your homeowners policy, though.)
A key thing to understand about life insurance is that not everyone needs it. If no one is depending on your income, then sad though your demise will be, you need not protect against anyone’s financial loss from it. But many people do have dependents, in the form of children, spouses, and even parents or others. So know that with life insurance, you may not be covered if the death is a suicide, if it happens as part of war-time combat or during the commission of a felony, or if it’s due to a private-aircraft accident. (Deaths tied to commercial flights are typically covered.)
Also, if you regularly engage in dangerous activities such as car-racing, hang-gliding, or extreme mountain-climbing, a related death may not be covered — unless you pay a premium for a rider to your policy. Lying on your insurance paperwork can also lead to a denied claim.
If you’re an investor and you’ve got much of your retirement security resting on an account at a brokerage, you can take comfort that you’re probably protected by the Securities Investor Protection Corporation. It’s a bit like the Federal Deposit Insurance Corporation, which covers bank accounts, but it may not provide all the protection you expect it to. The SIPC protects the cash and securities such as stocks and bonds that you may have in your brokerage account — in the event that the brokerage runs into deep trouble or fails, or if a broker steals your assets. It does not cover losses that occur if your stock or bond loses money or a company in which you’re invested goes out of business.
Even FDIC protection has limits. It typically covers assets in bank accounts up to $250,000 for each person’s accounts at each bank in each account ownership category. So if you have $350,000 in savings accounts at one bank, you may not be fully covered and you might want to divide the sum between two banks.
You’re smart to look into insurance for all kinds of needs — and smarter still to read the big and small print to be sure you understand what is and isn’t covered. In many cases, you can add the extra protections you seek. That might come at a cost, but it might be worth it, too.
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