What Are Waivers of Deductible in Homeowner's Insurance?

Waiver of deductible is a condition in your insurance policy that specifies the circumstances under which you will not be required to pay the deductible in the case of a claim.

The cash amount of the claim determines the "big loss" deductible waiver. Depending on the terms of your policy, the deductible could be waived if the claim reaches a particular amount.

Deductible waivers for large claims (or "substantial losses") are not as widely discussed, although they can be a key money-saving advantage in a claim.

Typically, the waiver of deductible applies when there is a catastrophic loss, such as a fire or a house insurance claim in which the home must be rebuilt.

If your insurance coverage offers a waiver of the deductible clause, you may feel more comfortable choosing a larger deductible to save money.

Do You Have a Deductible Waiver?

Waivers of the deductible are prevalent in house insurance, health insurance for certain coverages, and auto insurance.

Some auto insurance providers give the option to purchase deductible waivers. Be wary of "bought" deductible waivers because if the cost of the waiver is comparable to the savings of a higher deductible, you are not truly ahead.

Waivers of house insurance deductibles. There are references to renters insurance and condo insurance in the policy's language. You may have the option to purchase extra waivers, but you should always inquire about the free options first.

Waivers of the Deductible May Vary by the Insurance Provider

Yes, waivers of the deductible following a significant loss differ by insurance company and policy. You must inquire with your insurance agent whether your insurance company offers deductible waivers and the precise waiver amount for your policy.

For instance, a high-end homeowner's insurance coverage may waive the deductible, but the cap on the waiver may be as high as $50,000. Whereas a conventional homeowner's, renter's, or condo policy may waive the deductible only if the loss exceeds $10,000 or $25,000, this policy waives the deductible if the loss exceeds $5,000. There is no universal rule. The insurance company can determine when the deductible will be waived based on its clientele and target market.

Knowing whether and when your homeowner's insurance policy waives the deductible can be extremely helpful when considering when to increase your deductible to save money. This is a strategic advantage and value-add that insurance companies offer their clients.

Deductible Waivers When Choosing Insurance

Consider that Amy was shopping for her first homeowner's insurance and wanted to save money without sacrificing coverage.

Their broker gave them three insurance company options, all of which had the same annual premium but differing policy terms.

• Option 1: Deductible waiver if the claim exceeds $5,000
• Option 2: Deductible waiver if the claim exceeds $10,000
• Option 3: No large loss waiver exception

All firms offered an open perils (all risk) policy for the same price, but it was clear that Amanda would receive more money—thousands of dollars more—if they purchased the policy with the lowest deductible waiver.

Additionally, by inquiring about the large loss deductible waiver provision, Amy understood that selecting Option 3 would result in a claim costing thousands of dollars.

Always inquire whether the policy contains a large loss waiver of the deductible clause, as this information can impact a claim settlement.

If Amy chooses option 1, they would receive $5,000 extra in a large claim because the deductible would be waived once the damage reaches $5,000. In option 2, the deductible would not be waived until a loss of $10,000 or more had occurred.

Since Amy had no intention or need to file small claims, they decided to increase the policy's savings by 20% by selecting a $1,000 deductible, saving more money for the increased deductible on her annual insurance costs, and resting easy knowing they wouldn't even be required to pay the deductible if the claim exceeded $5,000. The decision was simple after learning about the deductible waiver.

Example of a Deductible Waiver for a Large Claim

Joe has a significant water damage claim due to water entering their home as a result of a hurricane. They have a $1,500 insurance deductible, but due to the cost of the damage exceeding $25,000 and the policy waives the deductible for large losses exceeding $25,000, they are exempt from paying the deductible on the claim. They were pleased to have saved money by opting for a greater deductible and the fact that the insurance policy has a low deductible waiver maximum. Together, these two factors saved John substantial money on insurance.

Disappearing Deductibles vs. Waivers of Deductibles

The language for vanishing, disappearing, and loyalty deductibles might be confusing. The dollar value of the waived deductible might be used to illustrate the distinction.

Large loss deductible exemptions are typically included in a homeowner's insurance policy and apply to claims for losses exceeding thousands of dollars.

Disappearing or loyalty deductible waivers are typically associated with significantly lower levels of "waived" deductibles and are either purchased or earned.

Some insurance providers also offer deductibles that disappear over time. A disappearing deductible occurs when the insurance company reduces your deductible amount by a set percentage or dollar amount for each year in which you do not file a claim.

Each organization uniquely handles this type of benefit and sets its conditions. In today's competitive insurance market, you will probably find a variant of the concept if you shop around for insurance.

What Is a Disappearing Deductible Based on Loyalty?

Insurance businesses constantly seek to build customer loyalty or gain a competitive advantage. An insurance firm may use the vanishing, disappearing, or deductible-free policy to make its policy appear more enticing to consumers. Some auto insurers refer to this as the option to acquire a "deductible waiver."

Despite its benefits, keep in mind that you may have to pay extra for this type of coverage. Compare the cost of your coverage with no deductible to the cost of a policy with a deductible, particularly if you are not concerned about small claims.

How a Loyalty Program With Disappearing Deductibles Can Save You Money

For instance, your insurance carrier may give a $500 deductible that disappears over time. You may use this to obtain a $1,000 deductible but only have to pay the first $500 in a claim, as they will waive the first $500 due to your loyalty and good claims history. Thus, you pay $500 for the claim but receive a $1,000 deductible discount, resulting in an average 20% lower premium.

You must perform arithmetic to determine if you are indeed saving money.

Small claims may cost you more than they are worth over time due to the danger of losing a claims-free discount or incurring claims frequency costs.

Advertisements will promote loyalty or shrinking deductibles, but keep in mind that the waiver may wipe out the decreasing deductible in the event of a catastrophic loss.

How Combined Deductibles Function

Before you pay for a disappearing deductible, you may also note that some insurance providers offer a combined deductible when both your home and car are damaged. Even though it maintains distinct deductibles in the event of separate claims, if you had a claim that needed payment from both your house and auto insurance policies, having both policies with the same insurer may allow you to pay only one deductible. Check with your insurance provider to determine if it makes sense to consolidate your coverage.

How a Combined Deductible May Help You Save Money

Let's imagine that Julie's vehicle was broken into while doing their holiday shopping. The vehicle had smashed windows and other damage, but the robbers also stole $1,500 worth of gifts from the trunk.

Due to the theft of personal stuff from the trunk (which goes under the house insurance) and the damage to the car (which falls under the car policy), Julie was dismayed to find that they would have to pay two deductibles: $500 for her car deductible and $500 for her renter policy deductible.

$500 would have been saved if Julie had insured the home and car with an insurance provider that only charges one deductible when both the home policy and the car policy are required to settle a claim. Instead, they paid both deductibles, which ultimately cost them significantly more.

Ways to Reduce Your Insurance Costs

There are several methods to save money on insurance. One is before a claim when policy premiums are considered, and the other is after a claim when the actual payout amount is determined. You should ideally discover a way to do both.

• Knowing when your deductible is waived and factoring this into your decision to purchase insurance is optimizing the amount of money you receive from an insurance payment, which improves your financial position.
• Insuring yourself with a single carrier eliminates the need to pay numerous deductibles in the event of a claim that affects both your home and car.

If you are still looking for methods to save money on your house insurance, you may want to review your coverage options and determine whether or not you have a suitable policy.

Insurance firms are quite competitive when it comes to acquiring or retaining customers; therefore, it may be advantageous to shop around for insurance or haggle with your house or auto insurer to obtain the lowest total price.

By researching and switching to a different insurance provider, you may pay less and receive greater benefits.