Deductibles are a common feature in many insurance policies, and are found in the vast majority (if not all) of homeowners policies. The following is an explanation of how a New Hampshire homeowners insurance policy’s deductible works and how to go about choosing a deductible amount for your policy.
How Does the Deductible on My New Hampshire Homeowners Insurance Work?
Deductibles Determine Your Out-of-Pocket Expense
The purpose of a deductible is to decrease the number of small insurance claims that get filed. Deductibles discourage small insurance claims by requiring the policyholder to pay the first portion of a covered loss out-of-pocket. Thus, filing a claim for anything less than the deductible is pointless. Sometimes, it’s even wise to not file a claim for just over the deductible amount if the claim will increase future premiums more than what the insurance company will pay.
When you file a claim against your homeowner's insurance policy, an estimate of damage is usually determined by an adjuster representing the insurance company. If the damage is relatively minor, an appraisal by a contractor of your choice may be allowed, as long as approved by the company.
For a covered claim, once the estimate is agreed upon by you and the insurer, the company will issue you a check for the amount of damage, less your deductible, and up to the policy limit.
In most cases, the payment on a covered claim goes as follows:
- You pay the contractor the amount of your deductible
- Your insurer pays the difference between your deductible and damage, up to the policy limit
- You pay anything beyond the policy limit or for anything not covered
To see how this might play out in a claim, assume a wind storm causes roof damage totaling $10,000 and your policy has a deductible of $1,000. In this example, you’d need to pay $1,000 toward a new roof, and your insurer would contribute $9,000 ($10,000 claim - $1,000 deductible). A $10,000 claim is almost certainly below a homeowner's policy’s limit so that aspect wouldn’t come into play in this example.
If you had $10,000 in wind damage to your roof, as well as flood damage to your basement, your homeowner's policy would cover the roof damage, as indicated above. As flood is specifically excluded on most, if not all, homeowner's policies, you would pay for the water damage yourself.
Is My Homeowner's Deductible Paid Once per Policy Term?
Homeowner's insurance is not like health insurance, where you reach an out-of-pocket expense, and the rest is picked up by the insurance company. Your deductible will apply per occurrence, so if you had the unfortunate circumstance of a tree damaging your garage in January, a power surge in March, and a robbery in June, you would be responsible for all three deductibles.
Does My Deductible Apply to Each Coverage?
It is not uncommon to have a claim that impacts both the dwelling as well as contents. An example of such a claim is a fire loss. In this case, both the home itself and personal property is damaged, but typically only one deductible would apply.
Another common loss we see as agents is a homeowner that backs their car into the garage, (meaning literally into the garage). In this case, the home is damaged (and subject to the homeowner's deductible) as well as the car (typically subject to the auto policy's collision deductible). If your home and auto are with the same insurance company, they may have a policy condition within the contract to waive one of the deductibles, but not always.
Can Homeowners Insurance Policies Have Different Deductibles?
While the concept of a deductible is reasonably straightforward, the matter becomes a little more complicated in some homeowner's policies.
For example, coastal homes have a higher susceptibility to damage due to high winds. Many insurance companies do not offer coverage for beachfront homes within a mile of the coast. Those that do may offset the coverage with a percentage deductible specific for wind.
An example could be a home located in Rye, NH, with the standard homeowner's deductible at $1000, and a wind deductible at 2%. If a home with $500,000 in dwelling coverage was damaged from wind during a Nor' Easter, the deductible would be $10,000, not $1,000. The percentage applies to the dwelling amount, not the estimate of damage, so it is essential to look at your policy to see if there are different deductibles.
Earthquake coverage also typically comes with a percentage deductible, given the extent of damage can be significant. If you choose to purchase earthquake coverage (which is not automatically included in most home insurance policies), you would also select a percentage deductible between 5 and 15%. Using the same example above, a home with $500,000 in dwelling coverage would have a deductible between $25,000 and $75,000 depending on the deductible percentage chosen.
Lastly, some portions of a homeowner's policy do not have any deductible apply. This is common in the liability coverage included in homeowner's policies. It is also common not to have a deductible apply to scheduled jewelry, art of other items that are individually listed on the policy.
Select Deductibles You Can Afford
You can usually select from a few different deductible options when you purchase a homeowner's policy. What deductible is right for you depends on your situation.
To get the lowest possible premiums, select a higher deductible option. As a policy’s deductible increases, the insurer’s risk exposure decreases, and they typically reduce premiums accordingly.
If you’re more concerned about potential out-of-pocket costs, you may want a lower deductible. In general, it’s a good idea to have a deductible that’s no larger than what you could afford to pay in the event of an emergency or unexpected claim.
If you need help weighing the advantages and disadvantages of different deductible options, talk with an insurance agent as they can quote you various deductibles to see the impact on the premium.
Talk with a New Hampshire Insurance Agent
To speak with a knowledgeable agent, contact us at HPM Insurance. Our independent agents have helped many New Hampshire homeowner's set up insurance policies that are tailored to their particular situations, and we’re happy to assist you with your homeowners insurance needs.