Am I crazy for having a high deductible?
- PolarBearMarket
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Am I crazy for having a high deductible?
I bought a house last year that was built ~25 years ago with a roof that has never been replaced. When selecting homeowners insurance, however, I opted for very high deductibles on all dimensions - including wind and hail damage ($10,000 deductible). I did this because my wife and I have plenty stored away to self-insure for small claims and it substantially reduces the premium.
Low and behold, a windstorm last week blew off some of my shingles. When I called up a few contractors to get repair estimates, they all told me the same thing: it would cost $500-700 to repair, but they would not be able to find the shingles to do it. I called my insurance company, and they said they would expect to need to replace the entire roof (est. ~$20,000).
In retrospect, choosing a high-deductible on wind and hail may not have been the right choice, because it gets windy and hails a lot here (midwest), and I should have known that those would lead to a potential roof replacement. I assumed it couldn't possibly happen that often though because this roof lasted 25 years without needing to be replaced, but was obviously wrong.
However, I still think it was the right choice for us, because the deductible is paid for after ~6 years of the reduced premiums that we get for having a high deductible. Does this jive with what you all have experienced, or would you have opted for a lower deductible and 'hoped' for a storm?
My options are limited, so I will probably pay the $10K and get a new roof. I do want a new roof after all, and as I mentioned above $10,000 is completely affordable for us. I am a little envious of my neighbor, who is also getting his roof replaced but is only paying a $1,000 deductible. Just looking for re-assurance that I made a reasonable choice despite being the guy paying 10x to replace his roof!
Low and behold, a windstorm last week blew off some of my shingles. When I called up a few contractors to get repair estimates, they all told me the same thing: it would cost $500-700 to repair, but they would not be able to find the shingles to do it. I called my insurance company, and they said they would expect to need to replace the entire roof (est. ~$20,000).
In retrospect, choosing a high-deductible on wind and hail may not have been the right choice, because it gets windy and hails a lot here (midwest), and I should have known that those would lead to a potential roof replacement. I assumed it couldn't possibly happen that often though because this roof lasted 25 years without needing to be replaced, but was obviously wrong.
However, I still think it was the right choice for us, because the deductible is paid for after ~6 years of the reduced premiums that we get for having a high deductible. Does this jive with what you all have experienced, or would you have opted for a lower deductible and 'hoped' for a storm?
My options are limited, so I will probably pay the $10K and get a new roof. I do want a new roof after all, and as I mentioned above $10,000 is completely affordable for us. I am a little envious of my neighbor, who is also getting his roof replaced but is only paying a $1,000 deductible. Just looking for re-assurance that I made a reasonable choice despite being the guy paying 10x to replace his roof!
Re: Am I crazy for having a high deductible?
Your reasoning is sound. Clark Howard says to pick the highest deductible you can afford, and only put in claims for catastrophic damage. Once you put in a claim, insurance co put you on the clue report, and may jack up your rates, plus being on the clue report makes it difficult to get new insurance.
https://clark.com/insurance/c-l-u-e-rep ... erwriting/
https://clark.com/insurance/high-or-low ... -deductib/
https://clark.com/insurance/c-l-u-e-rep ... erwriting/
https://clark.com/insurance/high-or-low ... -deductib/
Last edited by mhalley on Mon Apr 05, 2021 12:36 pm, edited 1 time in total.
Re: Am I crazy for having a high deductible?
I think you are fine.
We chose $5,000 for home. It is unlikely we would file a claim for your scenario.
Have you asked what will happen to your rate with this claim? Maybe you get a grace claim?
Insurance is a quandary. You need it, but rarely want to use it. In a similar scenario we were told we would lose one of the 20% "preferred - no claim" discounts.
Let's say you choose $1,000 or $2,000. How many small claims can you file before you get dinged? It seems you pay someway.
We chose $5,000 for home. It is unlikely we would file a claim for your scenario.
Have you asked what will happen to your rate with this claim? Maybe you get a grace claim?
Insurance is a quandary. You need it, but rarely want to use it. In a similar scenario we were told we would lose one of the 20% "preferred - no claim" discounts.
Let's say you choose $1,000 or $2,000. How many small claims can you file before you get dinged? It seems you pay someway.
- ResearchMed
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Re: Am I crazy for having a high deductible?
Another consideration is whether you would even want to file a claim for "smaller losses".
Those could affect your insurance rates going forward, or even get you cancelled, depending upon amounts and frequencies.
We have elected not to make any claims where the amount of the insurance reimbursement would be relatively small, vs. what we paid ourselves.
Thus, we have a relatively high deductible, because we probably wouldn't file claims anyway for some of the "little things that can and do happen", etc.
Also, we can afford those higher deductibles, even though they can lead to costs that are "annoying".
But they aren't worth risking our coverage entirely, or ending up with much higher premiums... hence we don't want to involve the insurer in any of those things that can and do happen.
However, twice in the past several years we had claims that were due to a third party, one auto and one home/property.
In both of those cases, we did file claims with our insurer, who then went after the other party's insurer. Our insurer promptly paid us the amount over the deductible, and their actions also helped to recover our deductible, which took longer
RM
Those could affect your insurance rates going forward, or even get you cancelled, depending upon amounts and frequencies.
We have elected not to make any claims where the amount of the insurance reimbursement would be relatively small, vs. what we paid ourselves.
Thus, we have a relatively high deductible, because we probably wouldn't file claims anyway for some of the "little things that can and do happen", etc.
Also, we can afford those higher deductibles, even though they can lead to costs that are "annoying".
But they aren't worth risking our coverage entirely, or ending up with much higher premiums... hence we don't want to involve the insurer in any of those things that can and do happen.
However, twice in the past several years we had claims that were due to a third party, one auto and one home/property.
In both of those cases, we did file claims with our insurer, who then went after the other party's insurer. Our insurer promptly paid us the amount over the deductible, and their actions also helped to recover our deductible, which took longer
RM
This signature is a placebo. You are in the control group.
Re: Am I crazy for having a high deductible?
My deductible is 1% of replacement value, which is about $8K. I chose this because the premium was about $800/yr less at the time. That was about 10 years ago and I haven't filed a claim. I view homeowners as insurance against a catastophe, not a broken window.
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Re: Am I crazy for having a high deductible?
I opt for the highest deductible possible as well. I think it is a sound decision.
As a side note, it seems that you should be expecting to repair a 25 year old roof. The hail/wind may have sped up the process a bit, but it was coming sooner rather than later.
As a side note, it seems that you should be expecting to repair a 25 year old roof. The hail/wind may have sped up the process a bit, but it was coming sooner rather than later.
Re: Am I crazy for having a high deductible?
I would not have filed a claim for the roof, even if I had a low deductible. I would worry about the effects on my rates. If I lived in an area with a lot of wind and hail damage, I might worry about even being allowed to keep the policy.
For homeowners, it generally pays to have a high deductible, maybe higher than the one you have, and only file claims for big losses.
You can easily check how much your premium would be at higher or lower deductions. We found there was a point at which further increasing the deductible had little or no effect on our premiums. Apparently, the company decided we would only file for big losses . It may have concluded that losses big enough that they would have to pay would only be catastrophic and priced the coverage based on the low likelihood of that.
I would not insure against maintenance costs, like periodic service and replacement of a roof.
For homeowners, it generally pays to have a high deductible, maybe higher than the one you have, and only file claims for big losses.
You can easily check how much your premium would be at higher or lower deductions. We found there was a point at which further increasing the deductible had little or no effect on our premiums. Apparently, the company decided we would only file for big losses . It may have concluded that losses big enough that they would have to pay would only be catastrophic and priced the coverage based on the low likelihood of that.
I would not insure against maintenance costs, like periodic service and replacement of a roof.
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Re: Am I crazy for having a high deductible?
Re: neighbor
How much has he paid in increased premiums since the last time the insurance company replaced his roof due to wind/hail?
How much has he paid in increased premiums since the last time the insurance company replaced his roof due to wind/hail?
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Re: Am I crazy for having a high deductible?
We have always had relatively high homeowners and auto deductibles and have saved many thousands of $ over the years because of it. Then for some reason I decided it was smart to get personal property riders for some smaller high value items. About 18 months ago I called to inquire about filing a claim on a damaged expensive camera. Big mistake! I ended up not filing the claim but it is now shown on our record as a claim filed even though nothing was paid out. The first sign of trouble was when we sold our house - our buyer had to do a video inspection with their insurance company who said there was a recent property damage claim at our residence. Then when it was time to renew the personal property policy, the policy price more than doubled. I canceled it. I can only hope that when we close on our new home in a few months that it won't be held against us on our new homeowners policy. Lesson learned!ResearchMed wrote: ↑Mon Apr 05, 2021 12:37 pm Another consideration is whether you would even want to file a claim for "smaller losses".
Those could affect your insurance rates going forward, or even get you cancelled, depending upon amounts and frequencies.
...
- JupiterJones
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Re: Am I crazy for having a high deductible?
Well I'd imagine your neighbor would be a little envious of your homeowner's insurance bill.PolarBearMarket wrote: ↑Mon Apr 05, 2021 12:22 pm I am a little envious of my neighbor, who is also getting his roof replaced but is only paying a $1,000 deductible.
I think you made absolutely the right call. The cheapest insurance is always self insurance.
A lifetime spent taking high deductibles and eschewing extended warranty sales pitches will, on average at least, save you money overall. If it didn't, there would be no insurance companies. They make money on the difference between what you're expected to pay in premiums and warranty fees and what they're expected to pay out in claims. Paying yourself that money instead of them means that you get those "profits" instead.
Of course it also means you take on the risk instead of them, so are likely to have to pay yourself some "claims" now and again. This is one of those times. That's the nature of it. Odds are you'll still come out ahead when all is said and done (heck, it sounds like you already have).
"Stay on target! Stay on target!"
- illumination
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Re: Am I crazy for having a high deductible?
Would an insurance company buy you a new roof over a color match problem with a few shingles? I honestly don't know the rules on that.
I think you only insure events that can break you financially and go high on the deductibles. Most times over the long haul, you'll win. But there's always going to be those events where you don't.
I think you only insure events that can break you financially and go high on the deductibles. Most times over the long haul, you'll win. But there's always going to be those events where you don't.
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Re: Am I crazy for having a high deductible?
No, I have a high deductible. I don't have the time nor wish to spend the drama on trying to get my house insurance to replace my roof for something like mild hail damage or mild wind damage. (somewhere back in the past - someone fessed up the out of pocket expenses for a roof that the "insurance company" paid for - and I was like... yeah, not enough of a savings for me for the drama/stress/not the shingles or the installer I would have used.)
I too am thinking a 25 year old (I'm assuming asphalt shingles of some kind) is probably at the end of it's life or nearly so...
the shingles come in 25, 30, and 35 year varieties - but their actual life time depends on your roof (peaks/valleys,) and your weather (sun, heat, freezes, wind and rain and snow). A 25 year old roof - is near the end of it's life in my neck of the woods.
I too am thinking a 25 year old (I'm assuming asphalt shingles of some kind) is probably at the end of it's life or nearly so...
the shingles come in 25, 30, and 35 year varieties - but their actual life time depends on your roof (peaks/valleys,) and your weather (sun, heat, freezes, wind and rain and snow). A 25 year old roof - is near the end of it's life in my neck of the woods.
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Re: Am I crazy for having a high deductible?
No, I have a high deductible. I don't have the time nor wish to spend the drama on trying to get my house insurance to replace my roof for something like mild hail damage or mild wind damage. (somewhere back in the past - someone fessed up the out of pocket expenses for a roof that the "insurance company" paid for - and I was like... yeah, not enough of a savings for me for the drama/stress/not the shingles or the installer I would have used.)
I too am thinking a 25 year old (I'm assuming asphalt shingles of some kind) is probably at the end of it's life or nearly so...
the shingles come in 25, 30, and 35 year varieties - but their actual life time depends on your roof (peaks/valleys,) and your weather (sun, heat, freezes, wind and rain and snow). A 25 year old roof - is near the end of it's life in my neck of the woods.
I too am thinking a 25 year old (I'm assuming asphalt shingles of some kind) is probably at the end of it's life or nearly so...
the shingles come in 25, 30, and 35 year varieties - but their actual life time depends on your roof (peaks/valleys,) and your weather (sun, heat, freezes, wind and rain and snow). A 25 year old roof - is near the end of it's life in my neck of the woods.
- willthrill81
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Re: Am I crazy for having a high deductible?
When we got our current policy with Farmer's, the premium difference between a $1k deductible and higher deductibles wasn't significant. We would have to go around 15 years with no claims to break-even with a $2,500 deductible. So we opted for the common $1k deductible. But I'm sure that this varies significantly across insurers and locales.
The Sensible Steward
Re: Am I crazy for having a high deductible?
For us, never having filed a claim, the premiums saved were all profit.
Going far higher than $1,000 reduced premiums. There was a limit at which further increasing the deductible had a negligible effect, so we put our deductible at that inflection point.
Going far higher than $1,000 reduced premiums. There was a limit at which further increasing the deductible had a negligible effect, so we put our deductible at that inflection point.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either |
--Swedroe |
We assume that markets are efficient, that prices are right |
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Re: Am I crazy for having a high deductible?
No, you're not crazy. In fact, you've tempted me to increase my already high deductible ($5000). But upon checking I found that the savings for me would be quite negligible, so I guess I'll stay where I'm at. Good luck.
Re: Am I crazy for having a high deductible?
Not only did you make the right decision when you got the insurance, you are also being pro-active in your house maintenance since roofs usually last about 30 years.PolarBearMarket wrote: ↑Mon Apr 05, 2021 12:22 pm I bought a house last year that was built ~25 years ago with a roof that has never been replaced.
https://www.bobvila.com/articles/how-lo ... roof-last/
Before you commit to a new one, understand the warranty and the pros and cons of the material you would be using.
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Re: Am I crazy for having a high deductible?
If you can afford to pay the deductible without losing a nights sleep over it than I always say go for highest deductible.
One of the advantages of having large cash reserves is you get to make these kinds of decisions that save you money over the long term.
One of the advantages of having large cash reserves is you get to make these kinds of decisions that save you money over the long term.
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Re: Am I crazy for having a high deductible?
$25k deductible here. I would never file a claim for a non-catastrophic damage for the reasons mentioned by other posters. Just received our renewal notice and the premium is 2.1k. The quotes I received for similar coverage but a 5k deductible were 3.3-5k.
Insurance companies are in business to make money. They simply project your expected losses over a given time period, add in a profit and uncertainty margin, and discount it all back to arrive at your premium. It’s basically the inverse of a loan except you’re paying them upfront instead of the other way around.
Insurance companies are in business to make money. They simply project your expected losses over a given time period, add in a profit and uncertainty margin, and discount it all back to arrive at your premium. It’s basically the inverse of a loan except you’re paying them upfront instead of the other way around.