What Are Waivers of Deductible in Home Insurance?
The waiver of deductible is a clause in your insurance policy that specifies situations in which you will not be required to pay the deductible if you file a claim.
The "large loss" deductible waiver is based on the claim dollar value. If the claim exceeds a certain threshold, the deductible may be waived, depending on the terms of your policy.
Deductible waivers for large claims (or "large losses") are less commonly discussed, but they can be a significant money-saving advantage in a claim.
The waiver of deductible is usually used when there is a major loss, such as a home insurance claim that requires the home to be rebuilt or a fire.
If you have an insurance policy with a deductible waiver clause, you may feel more comfortable taking a higher deductible to save money on your insurance.
Do You Have a Waiver of Deductible?
Deductible waivers are common on home insurance policies, health insurance policies for certain coverages, and car insurance policies.
Some car insurance companies will allow you to purchase a deductible waiver. Be wary of "purchased" waivers because if the cost of the waiver equals the savings from a higher deductible, you're not really ahead.
Are Waivers of Deductible Different With Each Insurance Company?
Yes, deductible waivers following a large loss will vary depending on your insurance company and policy choice. You should ask your insurance representative if your company provides deductible waivers and what the specific waiver amount is on your policy.
High-end homeowner policies, for example, may include deductible waivers, but the waiver limit may be higher, such as $50,000. A standard homeowner, renter, or condo policy may agree to waive the deductible only if the loss exceeds $10,000 or $25,000, respectively. There is no universal rule. Based on their client and target market, the insurance company can decide when to waive the deductible.
Knowing whether or not your home insurance policy will waive the deductible can help you decide when to raise your deductible to save money. This is a strategic advantage and value-add that insurance companies provide to their clients.
Waivers of Deductible When Choosing Insurance
Assume Amanda was looking for her first home insurance and wanted to save money while still getting adequate coverage.
Their broker presented them with three insurance company options, each with the same annual price but different policy terms:
- Option 1: Waiver of the deductible if the claim exceeds $5,000
- Option 2: Waiver of deductible if the claim exceeds $10,000
- Option 3: No large loss deductible waiver
All companies offered an open perils (all risk) policy for the same price, but it became clear that if Amanda filed a claim, she would receive more money—thousands of dollars more—if they chose the policy with the lowest deductible waiver.
Furthermore, by inquiring about the large loss deductible waiver clause, Amanda discovered that selecting Option 3 would result in a claim costing thousands of dollars.
In this case, Amanda's choice of option 1 would net them $5,000 more in a large claim because the deductible is waived once the damage exceeds $5,000. Option 2 would waive the deductible after $10,000 of loss if there was a large claim.
Because Amanda had no intention or need to file minor claims, they decided to increase the savings on the policy by 20% by selecting a $1,000 deductible—saving a lot more money for the increased deductible on her annual insurance costs, and resting easy knowing they would not even have to pay the deductible if the claim exceeded $5,000. The decision was simple based on what they had learned about the deductible waiver.
Example of a Waiver of Deductible in a Large Claim
John has a significant water damage claim as a result of water getting into their house after a storm. They have a $1,500 insurance deductible, but because the cost of the damage exceeds $25,000 and the policy includes a large loss waiver of deductible for losses exceeding $25,000, they do not have to pay it in the claim. They were relieved to have saved money by opting for a higher deductible, as well as the fact that the insurance policy has a low waiver of deductible limit. Overall, the combination of these two factors saved John a significant amount of money on insurance.
Disappearing Deductibles vs. Deductible Waivers
The terminology used to describe disappearing, loyalty, or vanishing deductibles can be perplexing. The dollar value of the waived deductible is one way to understand the difference.
- Large loss deductible waivers in home insurance are typically included in the policy wording and deal with larger claims for losses in the thousands of dollars.
- Purchased or earned, disappearing deductibles or loyalty deductible waivers generally deal with much lower levels of "waived" deductibles.
Some insurance companies also provide deductibles that vanish. When you have a disappearing deductible, your insurance company reduces the amount you pay for your deductible by a certain percentage or dollar amount for each year you are claim free.
What Is a Loyalty Based Disappearing Deductible?
Insurance companies are constantly looking for new ways to increase customer loyalty or gain a competitive advantage. A vanishing, disappearing, or deductible-free policy is one way an insurance company may tailor their policy to appear more appealing to a consumer. Some car insurance companies refer to this as the "waiver of deductible" option.
Although it has advantages, keep in mind that you may have to pay a little more for this type of coverage. Weigh the cost of your deductible-free policy against the cost of a deductible-based policy, especially if you are not concerned about minor claims.
How a Disappearing Deductible Loyalty Program Can Save You Money
For example, your insurance company may offer you the option of a $500 disappearing deductible. You could use this strategy to get a $1000 deductible and only pay the first $500 in a claim because they are waiving up to $500 due to your loyalty and good claims record. So you pay $500 for the claim but benefit from a $1,000 deductible discount, which could result in a 20% reduction in premium.
You must do the math to determine whether or not you are truly saving money.
Advertisements will promote loyalty or disappearing deductibles, but keep in mind that the disappearing deductible may be washed out by the waiver in the event of a major loss.
Combined Deductibles and How They Work
Before you pay for a disappearing deductible, keep in mind that some insurance companies offer a combined deductible when you have a loss that affects both your home and your car. Even though it maintains separate deductibles in the event of separate claims, if you had a claim that required payment from both your home and car insurance, having both policies with the same company may allow you to pay only one deductible. Inquire with your insurance company about this and see if it makes sense to consolidate all of your policies.
How a Combined Deductible Could Save You Money
Assume Julie's car was broken into while they were out shopping for the holidays. The car had broken windows and other damage, but the thieves also stole $1,500 in gifts from the trunk.
Julie was disappointed to learn that they would have to pay two deductibles: $500 for her car deductible and $500 for her renter policy deductible because the incident involved the theft of contents from the trunk (the gifts are personal property and thus fall under the home policy) and damages to the car (this falls under the car policy).
They would have saved $500 if Julie had insured the home and car with an insurance company that only charges one deductible when both the home and car policies are required to pay a claim. Instead, they paid both deductibles, which resulted in a much higher bill.
Ways to Save Money on Your Insurance
There are several methods for saving money on insurance. The first is before a claim, when you look at what you pay for policy premiums, and the second is after a claim, when you see how much money you will actually receive. Ideally, you'll be able to do both.
- Knowing when your deductible is waived and making this a part of your insurance purchase decision is one hidden way to maximize how much you will receive in an insurance payout, putting you in a better financial position.
- Insuring yourself with a single company saves you money by eliminating multiple deductibles in a claim that affects both your home and your car.
When it comes to getting or retaining business, insurance companies are very competitive. It may pay to shop around for your insurance or negotiate with your home or car insurance to get the best overall price.
With a little effort and research, you could end up paying less and receiving more by switching to a new insurance company.