Unveiling the Perils Behind Increasing Home Insurance Deductibles

In recent years, more Americans have been opting for larger home insurance deductibles as a way to reduce their premiums. However, this approach comes with significant risks that homeowners need to understand.

According to data, home insurance deductibles have increased dramatically over the past five years. Many homeowners are choosing policies with higher deductibles to offset rising premiums. While this may seem like a good financial strategy initially, experts warn that it adds more risk.

A home insurance deductible is the amount a homeowner must pay out-of-pocket before the insurance company covers the rest of a claim. Opting for higher deductibles can lead to lower premiums. However, if your home is prone to damage, you could find yourself in a financially vulnerable position.

In 2023, there was a 44% increase in new home insurance policies with deductibles exceeding $2,000 compared to the previous year, while policies with $500 deductibles decreased by 16%, as reported by Matic Insurance. Charles Nyce, an Associate Professor of Risk Management and Insurance at Florida State University, warns of the dangers of this trend, stating that there will be people who suffer losses they can’t afford.

This upward trend in deductibles aligns with a significant rise in the national average for home insurance premiums. According to Bankrate, the average coverage on a $250,000 home increased by 20% from 2022 to $1,428 per year. Homeowners in disaster-prone areas like Florida face even higher rates, with some being charged up to $6,000 annually for coverage.

Nyce suggests that homeowners explore other strategies to lower premiums, such as implementing measures to protect their homes from natural disasters. He also advises homeowners to review their coverage annually, pay attention to coverage limits, and inquire about available discounts and qualification criteria.

However, homeowners need to be prepared to cover the deductible if a loss occurs. Some deductibles have fixed dollar amounts, while others are calculated as a percentage of the home’s insurance premium, typically between 1% and 2% of its value. For example, in Florida, a common deductible for homeowners insurance is 2% for hurricane losses, meaning homeowners would be responsible for the first 2% of the insured value of the home in the event of a claim.

This article appeared in The Patriot Brief and has been published here with permission.

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Written by Western Reader

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