Years ago, it wasn't all that uncommon to see a $100 deductible. Those days are gone. Today, our standard deductible is $500 but I sell more deductibles of $1.000 and $2,500. There's a reason for this. In the past, say around 25 years ago, a homeowners policy was very basic and really only covered your home and contents with a few other ancillary coverages. The consumer was different, also. They usually only filed a claim for something big like a fire or tornado.
About 20 years ago or so, insurance companies thought it would be a good idea to add more coverages for smaller things like refrigerated food and others. Then, a strange thing happened: People started claiming these things. You see, big claims like fires are very infrequent and the rates were built around these rarely occurring, big losses. They weren't prepared for the more frequent small losses. Therefore, a $100 deductible on a total loss doesn't add much to the claim. However, insurance companies began seeing a lot of smaller claims and, now, that $100 deductible made it beneficial to the consumer to claim that $400 loss. In fact, they became so frequent that it was really hurting the insurance companies profitability. Every claim requires people to process it, adjust it, and make a payment. Insurance companies were seeing these costs skyrocket and they had no choice but to raise premiums to offset these costs.
They finally reached a point where they had to discourage all these small losses. The way they did it? they made the $100 and $250 deductible options a lot more expensive. So now, a $500 deductible is pretty standard, with higher deductibles saving quite a bit off the premiums.
What does this mean for you? First, realize that your homeowners policy was designed to cover the catastrophic losses, not the small things that happen more often. In Michigan, if you have 3 claims in a 3 year period that aren't weather-related, your company can cancel your policy. This will leave you in a spot where you may have to pay 3 or 4 times the premium your used to until you're eligible again.
A homeowners policy is not a maintenance contract. As a homeowner, things are going to happen and the responsibility for maintaining your home is yours. My advice is this: Take care of your home and pay for the small things and take a higher deductible. You'll probably save more before you have claim than the difference in the deductible. In the long run, you'll be protected against the big things and you'll have more money in your pocket.
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About 20 years ago or so, insurance companies thought it would be a good idea to add more coverages for smaller things like refrigerated food and others. Then, a strange thing happened: People started claiming these things. You see, big claims like fires are very infrequent and the rates were built around these rarely occurring, big losses. They weren't prepared for the more frequent small losses. Therefore, a $100 deductible on a total loss doesn't add much to the claim. However, insurance companies began seeing a lot of smaller claims and, now, that $100 deductible made it beneficial to the consumer to claim that $400 loss. In fact, they became so frequent that it was really hurting the insurance companies profitability. Every claim requires people to process it, adjust it, and make a payment. Insurance companies were seeing these costs skyrocket and they had no choice but to raise premiums to offset these costs.
They finally reached a point where they had to discourage all these small losses. The way they did it? they made the $100 and $250 deductible options a lot more expensive. So now, a $500 deductible is pretty standard, with higher deductibles saving quite a bit off the premiums.
What does this mean for you? First, realize that your homeowners policy was designed to cover the catastrophic losses, not the small things that happen more often. In Michigan, if you have 3 claims in a 3 year period that aren't weather-related, your company can cancel your policy. This will leave you in a spot where you may have to pay 3 or 4 times the premium your used to until you're eligible again.
A homeowners policy is not a maintenance contract. As a homeowner, things are going to happen and the responsibility for maintaining your home is yours. My advice is this: Take care of your home and pay for the small things and take a higher deductible. You'll probably save more before you have claim than the difference in the deductible. In the long run, you'll be protected against the big things and you'll have more money in your pocket.