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HO insurance deductibles?
Old 05-07-2021, 01:39 PM   #1
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HO insurance deductibles?

I was looking at my insurance and thinking to raise the deductible. . . but it takes 12 years to break even which seems like a lot. (I can afford the premium or the loss either way). . .
Is break even the wrong way to look at this?
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Old 05-07-2021, 02:27 PM   #2
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And your question is

I personally have $1000 deductible on our home. My replacement cost is over 50% more than the market value of the home. I'm in a low cost of living area
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Old 05-07-2021, 02:31 PM   #3
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Two thoughts:

I generally assume that the insurance company is both better at pricing risk than me and including a reasonable profit for themselves. Therefore I generally do not insure whatever I can afford to pay for myself. I therefore do not look at breakeven.

Because I am under the impression that filing "small" HO insurance claims are both a hassle for me and the insurance company and also possibly used as an indicator for them to raise my rates in the future, I have never filed a "small" HO claim. I then figure if I'm not going to file "small" claims, it seems there is little to no benefit of a low deductible.

Oh, the other thing is that if you have a mortgage, the mortgage company may require you to have HO insurance with a relatively low deductible. So if you have a mortgage, I'd check with them first to see what my options would be.
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Old 05-07-2021, 02:47 PM   #4
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And your question is
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Originally Posted by badatmath View Post
Is break even the wrong way to look at this?
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Originally Posted by SecondCor521 View Post
Oh, the other thing is that if you have a mortgage, the mortgage company may require you to have HO insurance with a relatively low deductible. So if you have a mortgage, I'd check with them first to see what my options would be.
No mortgage.
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Old 05-07-2021, 02:47 PM   #5
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With HO, the price breaks for higher deductibles are barely worth the bother. I think ours is about $1k. It's not like car insurance where there's an incentive to raise it to 5 or 10 or whatever.
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Old 05-07-2021, 02:54 PM   #6
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I got a recent quote from Amica for a few different deductibles and the difference was noticeable. I’ve chosen $2500, which is manageable from my emergency fund.
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Old 05-07-2021, 05:38 PM   #7
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I personally have $1000 deductible on our home. My replacement cost is over 50% more than the market value of the home. I'm in a low cost of living area
The insurance company is charging you by the $ thousands on your premium. I too don't care that they start you out on a teaser premium and look up in 5 years and you're paying premiums far over the home's retail value.

But if you didn't rebuild the home in a total loss, they'd only want to pay you a depreciated value which may be 2/3 what they say the replacement cost of your house is.

And if you have more than 2 claims of any kind in 3 years, you're going to show up on Lexus Nexus' high risk customer list, and the insurance company will cancel your insurance. Then other companies will double your premium--even if you can find one to insure you.

The insurance on our "new to us" 12 year old home we paid $350K for was going to be $4,000+ per year. We got it for "only" $2,200. Outrageous.
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Old 05-07-2021, 06:16 PM   #8
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The insurance company is charging you by the $ thousands on your premium. I too don't care that they start you out on a teaser premium and look up in 5 years and you're paying premiums far over the home's retail value.

But if you didn't rebuild the home in a total loss, they'd only want to pay you a depreciated value which may be 2/3 what they say the replacement cost of your house is.

And if you have more than 2 claims of any kind in 3 years, you're going to show up on Lexus Nexus' high risk customer list, and the insurance company will cancel your insurance. Then other companies will double your premium--even if you can find one to insure you.

The insurance on our "new to us" 12 year old home we paid $350K for was going to be $4,000+ per year. We got it for "only" $2,200. Outrageous.
+1 I watched this happen to my neighbor and decided I would never be making small claims again anyway. So why not enjoy the lower premium.

I also noticed that most of them add a percentage every year for inflation and that it can get out of hand. Since I have been an appraiser most of my life, I noticed. But with building costs today inflating rapidly, it is possible to be underinsured, particularly if you have had additions and improvement they didn’t know about.

And my other pet peeve is that “guaranteed replacement cost” only works if you do in fact replace the item. For example, I lost lots of hoses in a forest fire back in 2000 along with a lot of other things. A $50 hose that is five years old will be paid at its depreciated value(maybe $5), unless and until, you actually go out and buy another $50 hose. I no longer needed a dozen hoses because everything burnable had been vaporized.
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Old 05-08-2021, 08:53 AM   #9
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I have a $2500 deductible. I've owned a primary residence for 36 years and a total of 4 rentals equaling 42 years of ownership. I still have never made an insurance claim.
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Old 05-08-2021, 08:59 AM   #10
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I have a $2500 deductible. I've owned a primary residence for 36 years and a total of 4 rentals equaling 42 years of ownership. I still have never made an insurance claim.
Hmm interesting. I can't really imagine claiming a small thing but I can't really think of what small thing might happen. Obviously water damage or fire could be huge.
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Old 05-08-2021, 02:11 PM   #11
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I also noticed that most of them add a percentage every year for inflation and that it can get out of hand..
Yeah, this had been around 5% per year for me in recent years, and this year it's up over 12%. That's some inflation. I've never made a claim to my homeowner's insurance in 30 years.

I checked into increasing my deductible from $1000 to $2000, but there was a 7 year break-even if I need to make any claim, big or small, so it didn't seem worth it.
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Old 05-08-2021, 03:32 PM   #12
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Two thoughts:

I generally assume that the insurance company is both better at pricing risk than me and including a reasonable profit for themselves. Therefore I generally do not insure whatever I can afford to pay for myself. I therefore do not look at breakeven.
+1, we changed our deductible to $5K and saved enough to pay for a $2M umbrella which covers our house, rental, autos and motorcycle. I’ve only made one claim that I remember and had same USAA for long time. Just my view or whatever.
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Old 05-08-2021, 04:05 PM   #13
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We had an interesting situation recently. I live in a condo development (17 single family homes on a cul-de-sac street). One of our residents had a refrigerator water line break while she was on vacation. The cost to repair everything was over $20K and she had a $500 deductible on her own insurance.

Then her insurance company went after our HOA to be made whole. It turned out that our HOA rules were poorly drafted more than 20 years ago and there was enough ambiguity in them that her insurance company was able to collect.

Our HOA insurance policy has a $5K deductible, so that's what we were out. Not a really big deal, but still significant.

Now we're going to spend at least a couple thou to get our "master deed" rewritten to make sure this doesn't happen again.
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Old 05-08-2021, 05:29 PM   #14
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Our deductible is 1%. I don't recall the amount of the premium decrease when we raised our deductible but I do recall that it was meaningful.

We just received our new annual premium today and there was an actual reduction, with no changes to coverage other than the annual inflation escalator.
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Old 05-08-2021, 06:37 PM   #15
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I'm an immigrant and came from a country where concept of Insurance was mostly non-existent (at least back then, 25 years ago).

So when I look at all the insurances we have to pay here, I see huge waste in the system. I see HOI in that category (I know, I know I am in minority because most everyone here thinks HOI is the best thing to ever happen to mankind).

With that background, I wanted to move my deductible to as much as I could, several years ago. At around $7500 deductible, change in premium made a small dent. I asked the agent to increase the deductible to $25,000. And he started making excuses (may be valid ones) that mortgage company and replacement costs and so on. I don't have mortgage now, but do have HELOC. I think my deductible is still around $7500. I don't intend to file any claim. Too much hassle unless your house really burns down to ground.
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Old 05-09-2021, 07:33 AM   #16
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I checked into increasing my deductible from $1000 to $2000, but there was a 7 year break-even if I need to make any claim, big or small, so it didn't seem worth it.
It's 7 years to break even only if you make a claim. If you don't make a claim you're ahead year 1, further ahead year 2, etc...
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Old 05-09-2021, 08:03 AM   #17
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It's 7 years to break even only if you make a claim. If you don't make a claim you're ahead year 1, further ahead year 2, etc...
Yes, that's the point of break even. It wasn't worth the change to save only $140 per year on a premiums when I could be hit with a $2000 deductible on a claim in less than 7 years and lose any savings in the long run. So, I kept the $1000 deductible, which is already double what it was about 15 years ago.
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Old 05-09-2021, 08:19 AM   #18
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Yes, that's the point of break even. It wasn't worth the change to save only $140 per year on a premiums when I could be hit with a $2000 deductible on a claim in less than 7 years and lose any savings in the long run. So, I kept the $1000 deductible, which is already double what it was about 15 years ago.
You're only counting savings going forward but you actually passed the break even point at least 7 years ago. Maybe longer depending on how many years you've had a lower deductible and your claim history.

That's why I have a higher deductible...over 35 years I have saved several times the premium difference. Even if I have to pay a higher deductible tomorrow I'd still be further ahead.
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Old 05-09-2021, 11:45 AM   #19
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Hmm interesting. I can't really imagine claiming a small thing but I can't really think of what small thing might happen. Obviously water damage or fire could be huge.
Small things that happened to me:

I had a toilet inlet valve suddenly let go and spray water , the damage was limited to the bathroom just by lucky placement of the drains. I repaired it myself for about $400. Didn't claim it.

No use spending $1,000 deductible for a $1,500->$2,000 professional repair.

Next time was some criminals threw rock through a window at my rental and tossed paint. Window was $400 to replace the glass. I'll fix the paint issue myself. Again no claim as doing it myself is far less than deductible.

On the other hand we had a big hail damage, punched holes in siding, ruined the roof. We claimed it. The insurance company paid out about 10 yrs worth of premiums, and we have a new roof
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Old 05-10-2021, 06:44 PM   #20
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With Farmers Insurance I priced with $1000, $2500, and $5000 deductibles. I went with the $5000 deductible. Premium savings were substantial. Someone earlier made the point, since small claims most likely are penalized by HO insurance with eventually increased HO premium rates, and since I can afford the smaller losses but want to insure against the catastrophe, why not go for the very large deductible. The premiums I save right away will mitigate any of the smaller "uninsured" losses I "might" eventually suffer.

Using "breakeven" analysis seems to assume some small losses (less than deductible) WILL occur within the "breakeven" period. And that is a false assumption. One's immediate savings on HO premiums for larger deductible may "never" need to be used for any smaller losses.
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