There is a lot that goes into owning a home and a lot to remember, especially for first-time homeowners. One of the most confusing, but also one of the most important things to understand, is home insurance. Plenty of people have insurance plans for their homes but do not take the time to understand how their insurance works until it comes time to use it. Home insurance may share some qualities with health insurance but there are a lot of places where they differ, which is where the confusion comes in. This especially applies to deductibles and how to pay them.
What is the Process of Homeowners’ Deductibles Collection and What Does It Include?
First, what is important to understand about homeowners’ deductibles is that, unlike healthcare deductibles where there is a yearly cap on the amount the insured pays, there is not for homeowners’ insurance. Homeowners’ insurance caps are on a per-claim basis, meaning the insured pays their deductible every time they make a claim. This often takes new homeowners’ by surprise, especially when their provider asks them to pay their deductible for a second time. Homeowners also confuse their premium with their deductible; premiums are what is paid monthly to the provider, while deductibles are paid to the company doing the repair on the house.
At its core, the deductible is the amount the homeowner pays that the insurance provider does not, homeowners are required to pay their deductibles by law. Most commonly, providers prefer for the insured to pay their deductible upfront with the contractor, who is also legally required in many states to collect the deductible, before the insurance company will pay their portion. Your deductible is also affected by how much your insurance bill is each month, as the higher the bill, the lower your deductible is. Some people, if they consider their area or themselves low risk for damage to their home, will raise their deductible so they do not have to pay as much each month to their provider.
Should I Collect My Homeowners’ Deductible Upfront?
Since most people’s deductibles are from $500 to $2000, smaller repairs rarely get a claim made about them and most people prefer to simply pay these costs upfront. Paying upfront can be quicker and easier for people in the financial position to do so, especially for smaller repairs that do not cost as much. This is also how most providers expect homeowners to pay their deductibles and will often not shell out their portion until the deductible has been paid.
Paying deductibles upfront may be the most common route people take, however, in the event of an emergency or disaster, paying your deductible is never the first thing on your mind. It can come as a shock later when you receive the bill for repairs, as many people’s deductibles range from $500 to $2000. People will often raise their deductible to lower their monthly insurance costs, but find out they are just paying the price later. Depending on the situation, you may not be prepared to spend that much money all at once and, if the repairs needed are serious, may find yourself without a home. Even the most disaster-prepared homeowners are still taken by surprise by the cost of home repairs after an emergency.
Most assume the struggle to pay deductibles affects just the homeowner themselves, but deductibles affect contractors and providers just as much. Contractors may miss out on work because the insured has a high deductible they cannot afford or may find themselves on the wrong end of the law because they chose to waive the deductible, something they legally cannot do in many states. For homeowner insurance providers, there is an endless amount of paperwork involved in collecting deductibles and they may find themselves struggling to help the people they are insuring if their deductible is high. Homeowners struggling to pay their out-of-pocket costs may not be able to afford their monthly insurance premium or may choose to switch providers to someone more willing to work with their financial situation.
Why Should I Collect My Homeowners’ Deductibles Over Time?
Paying your insurance deductible over time reduces the financial burden of home repairs. Instead of shelling out $2000 all at once, you can pay this amount over time and focus on the more important things that come after a disaster. A $2000 bill can turn into just $20 a month instead, which can be life-changing for many homeowners. Paying deductibles over time is not just for disasters, however, it works for any time you need to pay a deductible for repairs. For many people, even $100 can be more than they can afford all at once, which is why paying overtime works for so many people.
For contractors, you may find that you have more business by offering a pay overtime model, and more income because of it. More people will be able to afford your services than there might have been before and, in cases of a big disaster, you may be able to help the community more. This will also help contractors stay on the right side of the law, while still being able to help people in their community who are struggling to pay theirs out-of-pocket deductible costs. Homeowner insurance providers also benefit from homeowners paying their deductible over time, as people struggling to afford to pay out-of-pocket costs are less likely to be able to afford to pay their monthly insurance bills.
While paying your deductible upfront may be the easiest option for some people or for those paying for smaller repairs, paying overtime can ease the burden for even the most financially sound families. Disasters of any kind can especially affect any homeowners’ financial wellbeing. Paying deductibles over time also increases revenue for contractors and homeowner insurance providers alike, opening up their business to people who may not otherwise be able to afford it and overall helping the homeowners in their community.