Risk Balancing versus Deductibles

risk balancing versus deductiblesMortgage loan companies require a homeowner to carry insurance on their home while it has an active loan on it. The benefit is that in exchange for paying a yearly or monthly premium the homeowner transfers the risk of any loss to the insurance company. Insurance companies allow homeowners to select a deductible that will be paid before the insurance policy covers the cost of the loss. The challenge to the homeowner is balancing what deductible you can afford with the cost of your premium being charged.

Homeowners often consider adjusting their deductibles to help manage the cost of insurance premiums. Choosing a lower deductible will result in less money you pay for a loss but a higher premium cost. Choosing a higher deductible will lower your premium cost but add to your premium cost.

Deductibles are offered by insurance companies at a specific dollar amount or at a percentage of the insurance policy total amount. Your declaration page on your homeowner or auto policy will show this amount.

If you had a small fire in a $300,000 home which totaled $5,000 in damage, it might not be covered if it is less than the 2 percent deductible that would equal $6,000. In this case, if you can pay the cost of the repairs then having lower premiums might be worth it. On the flip side, if that amount would be difficult for you to pull together, then paying a higher premium would be the way to go.

Selecting a higher deductible can save you money in the present but could cause serious budget problems if you make a claim later. Meet with your property insurance agent to review your premiums and deductibles and make any changes up or down as needed.

Want some Insider Information on Fairfax VA homes for sale? Get a FREE Market Snapshot Report of Your Northern Virginia Home’s Value, or  Search All Northern Virginia Homes For Sale. Put that data you need at the tips of your fingers!

Leave a Reply

Your email address will not be published. Required fields are marked *