As is the answer to most questions, we say the right one for you. Questions you should ask yourself include “Would I want the insurance company to help me with a loss of $250? $500? $1,000? $2,500? $5,000? $10,000? Or even higher? Am I buying my policy for catastrophic losses or for any loss? Would I rather have a front end out of pocket or back end? Am I going to worry about the effect my deductible will have on ability to function after a loss? Will the bank accept my high deductible?”
If you would never turn in a claim below a certain threshold, do not buy coverage for amount below that amount. Do add the cautions to your thinking that we bring up lower on the page.
Insurance is designed to help recovery from catastrophic losses, not to serve as a maintenance policy. If an insurer believes you are planning on turning claims on every little thing, especially losses that could be prevented by better maintenance they will be less likely to offer comprehensive coverage packages.
When you have a certain amount of money earmarked for insurance out of your total operating budget you probably want to get the most bang for your buck. Making a comparison of policy creation options you will see that insuring a building while spending the same amount of money on premium goes farther when you have a higher deductible. For example, you chose a $500 deductible and for the premium you are willing to spend you can only get 60% of the replacement value of the building insured and the only loss settlement option you are given is Actual Cash Value. Whereas, if you increase your deductible to $2,500 you are now able to insure the building for a full replacement cost amount and you get the Replacement Cost Settlement option in the event of a covered loss. If you had chosen the first option with the $500 deductible you would have had a $500 deductible plus possibly tens of thousands of dollars in shortfall perhaps crippling your ability to rebuild your structure. This is another reason why we like higher deductibles.
In many cases your lender will limit how high a deductible you may purchase. Usually all they will allow is only 1% of the purchase price of you property.
Higher Deductible Loves and Hates
Loves:
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Saves me money! The higher deductible you choose the more money you will save.
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The insurer is willing to offer more coverage options.
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The accumulative effect of no losses and higher deductibles can grow wealth.
Hates:
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Compounded deductible for multiple losses costs me money! When you have multiple buildings insured and a windstorm comes through you will be exposed to.
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The amount of the deductible will be subtracted from the amount of eligible loss before the insurer cuts you a check.
Please keep in mind that this discussion is to give you ideas. You need to consider each insurer and property on a case by case basis to determine what is right based on the circumstances.
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