Monday, August 31, 2009

Home owners insurance

A tree fell on my house in May. While Allstate has been great, that's not what this post is about. I found out my mortgage payment increased 20%, largely due to a change in my insurance policy. That's not what this post is about, but what I was looking into when I learned something. It is going to save me money, and probably could save you also.

We've all heard about insurance companies raising rates after a claim. You can imagine they want to recoup their losses. Although I don't think this is original, Allstate has done this with some ingenuity. You see they told me up front I'd be receiving a "20% discount" off my rate for being "claim-free." Now that I've had a claim I lose the "discount" having the perception that I've been returned to the "normal" rate. " [Mind you "losing a 20% discount" means an increase of 25%.... If my insurance is $1,000, a 20% discount is $200.. making my claim free insurance $800... but when I lose that twenty percent discount I gain $200 on a current $800 payment. 200 is one quarter of 800, or a 25% increase. Funny how that works, isn't it?]. I have to be claim free for 5 years to regain my "discount."

I also learned today that my homeowner's insurance will be significantly less, if I opt for a higher deductible. I currently have a $1,000 dollar deductible. My annual payments decrease by about 25% if I opt for a $2,500 deductible, and about 40% if I opt for a $5,000 deductible. In a nutshell, the higher deductible is probably going to save me more money. The insurance company charges you for not being able to provide liquid capital.

Having no claims is always cheaper than having claims. You won't have to pay deductibles or "lose discounts." In this case, the choice is easy, you pick the highest deductible available to you. But, what if you have a claim? In most cases, the larger deductible is cheaper. In fact, the higher your homeowner's insurance, the better chance you'll save with a larger deductible. I purchased a very modest home. At my rates, even with a major claim every decade, it is cheaper for me to have a larger deductible. Do the math, you could probably save yourself a few hundred dollars annually (or you already have, good for you).

One more thing. The loss of the discount should come into play when deciding whether or not you should file a claim. Consider these options
Door 1: 1K normal, 1K deductible
Door2: 800 normal, 2,500 deductible
Door3: 600 normal, 5,000 deductible

Although your deductible for Door 1 is 1K. you should not claim anything under 2,000... you'll pay the 1k deductible and you'll lose your discount of 20%... ie your rates will go up 200 for five years... a total of $2,000. Do the same with Doors 2 and 3:

Door 1: shouldn't file claim unless it is 200% of deductible
Door 2: shouldn't file claim unless it is 132% of deductible
Door 3: shouldn't file claim unless it is 112% of deductible

As you provide more liquid capital (shift more risk to yourself)... your insurance policy becomes both cheaper and more usable. If you don't have the liquid capital, you'd be crazy to take the risk... but if you have $5,000 in stock sitting somewhere.. .you should call your insurance agent and get quotes on higher deductibles.

In other news. Claire De Lune is incredible... it's written in Db and in 9/8 time. Technicality aside, it's simple, yet stunning in sound. I've liked it for a long time, but just started poking around at learning it yesterday, and I'm absolutely floored. Here's a link to it with some teen throb pictures (or the deleted scene from Fantasia.

1 Comments:

Anonymous Jhon smith said...

thanks for sharing various kind of information...
nice blog...

5:08 AM  

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