Understanding Waivers of Deductible in Home Insurance

01
Does Your Policy Have a Waiver of Deductible Clause?

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What Is a Waiver of Deductible?

The waiver of deductible is a clause in your insurance policy that lists situations where you will not have to pay the deductible in the event of a claim.

The "large loss" waiver of deductible is based on the dollar value of the claim. If the claim exceeds a certain value, the deductible could be waived based on your policy wording and conditions. 

Big claim (or "large loss") waivers of deductible are not as commonly talked about but can be an important money-saving advantage in a claim.

Usually, the waiver of deductible comes into play when there is a major loss, such as a home insurance claim where the home has to be rebuilt or a fire.

If you have an insurance policy that has a waiver of deductible clause, you may also feel better about taking a higher deductible to save money on your insurance .

How to Find Out if Your Insurance Policy Has a Large Loss Waiver of Deductible Clause

Waivers of deductible are common on home insurance policies, health insurance policies for certain coverages, as well as in car insurance. 

Some car insurance companies will offer you the opportunity to buy a waiver of deductible. Be careful with "purchased" waivers because if the cost of the waiver of deductible is equal to the savings of a higher deductible, you're not really ahead. 

Are Waivers of Deductible Different With Each Insurance Company?

Yes, waivers of deductible following a large loss will vary based on your insurance company and policy choice. You need to ask your insurance representative if your insurance company offers a deductible waiver and what the specific waiver amount on your policy is.

For example, high-end homeowner policies have deductible waivers, but the limit of the waiver may be higher, such as $50,000. Whereas a standard homeowner or renter, or condo policy may agree to waive the deductible only if the loss is over $10,000 or $25,000. There is no standard rule. The insurance company can decide when they will waive the deductible based on their client and target market.

Knowing if and when your home insurance policy will waive the deductible can be very helpful in deciding when to increase your deductible to save money. Insurance companies use this as a strategic advantage and value-add to offer clients. 

Where to Find the Waiver of Deductible Information on Your Policy

Waivers of deductible in home insurance. renters insurance and condo insurance are found in the wording of the policy. You may have the opportunity to buy additional waivers, but you should always start with asking what's included for free. 

Example of How to Use a Deductible Waiver to Choose Insurance

Amanda was shopping for her first home insurance and wanted to save money on her costs while still getting good coverage.

Her broker presented her with three insurance company options, the annual price was the same for each, but the terms of the policy were different:

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 her an open perils (all risk) policy for the same price, but it became obvious that in a claim Amanda would get more money — thousands of dollars more if she took the policy with the lowest waiver of deductible. 

Furthermore, by asking about the large loss deductible waiver clause, she realized that choosing Option 3 would cost her thousands of dollars in a claim.

Always ask whether there is a large loss waiver of deductible clause in the policy because this information can make a major difference in a claim payout.

In this example, Amanda's decision to go with option 1 would get her $5,000 more in a large claim because as soon as damage in a claim exceeds $5,000 the deductible would be waived. In option 2, if there was a large claim, the deductible would only be waived after $10,000 of loss.

Since Amanda had no intention or need to make small claims, she also decided to increase her savings on her policy by 20 percent by choosing a $1,000 deductible; saving a lot more money for the increased deductible on her annual insurance costs, and resting easy knowing she would not even have to pay the deductible if the claim was more than $5,000. Based on what she learned about the deductible waiver, the decision was easy.

Example of a Waiver of Deductible in a Large Claim

John has a major water damage claim due to water getting into his house following a storm. He has a $1,500 insurance deductible, but because the cost of the damage is over $25,000 and his policy has a large loss waiver of deductible for losses over $25,000, he does not need to pay the deductible in his claim. He was glad he saved money by taking a higher deductible, and also that his insurance policy has a low waiver of deductible limit. Overall, the combination of these two things saved John a lot of money on his insurance.

02
Disappearing Deductibles, Vanishing Deductibles and Loyalty Deductibles

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Are Disappearing Deductibles and Deductible Waivers the Same Thing?

The terminology for disappearing, loyalty, or vanishing deductibles can be confusing. One way to understand the difference is in the dollar value of the waived deductible.

  • In home insurance, large loss deductible waivers normally would be included in the policy wording and deal with larger claims that are for losses for thousands of dollars.
  • Disappearing deductibles or Loyalty deductible waivers are purchased or earned and generally deal with much smaller levels of "waived" deductibles. 

Each company handles this kind of perk differently and sets different conditions. Some companies may not even offer the option, although in today's competitive marketplace it is likely that you will find some variation of the concept if you shop your insurance around. 

What Is a Loyalty Based Disappearing Deductible?

Insurance companies are always looking for ways to increase customer loyalty or get a leading edge over their competitors. The vanishing, disappearing or deductible free policy may be one of the ways an insurance company will gear their policy to seem more appealing to a consumer. Some car insurance companies refer to this as the option to purchase a "waiver of deductible".

Although it has it's advantages, keep in mind you may be paying a little more for this kind of coverage. Weigh the cost of your deductible free policy against the cost of a policy with a deductible, especially if you are not worried about small claims. 

Does Your Insurance Policy Offer a Disappearing Deductible Clause?

Some insurance companies also offer disappearing deductibles. A disappearing deductible is when the insurance company reduces the amount you pay for your deductible by a certain percentage or dollar amount for each year you are claims free. 

How a Disappearing Deductible Loyalty Program Can Save You Money

For example, your insurance company offers you the possibility of having a $500 disappearing deductible.You could use this as a strategy to get a $1000 deductible, and only really have to 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 in the claim but benefit from the discount of a $1,000 deductible which could be on average 20 percent less in premium.

You will have to do the math to figure out if you are really saving money.

Over time, small claims may cost you more than you get due to the possibility that you may lose a claims free discount or have claims frequency surcharges.

Advertisements will promote ​loyalty or disappearing deductibles but keep in mind that in a major loss, the disappearing deductible may be washed out by the waiver.

03
Combined Deductibles and How They Work

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Combined Deductibles When You Insure Your Home and Car With One Insurer

Before you pay for a disappearing deductible, you may also want to consider that some insurance companies offer a combined deductible when you have a loss that affects both your home and 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 one company would possibly offer you the advantage of only having to pay one deductible. Ask your insurance company about this and see if it makes sense to put all your insurance in one place.

Example of Combined Deductible Saving Hundreds of Dollars 

Julie's car was broken into while she was out holiday shopping. Her car had broken windows and some other damage, but the thieves also made off with $1,500 of gifts she had in the trunk.

Because the incident involved the theft of contents from the trunk (the gifts are personal property, therefore fall under the home renter's policy), and damages to the car (this falls under her car policy) she was upset to learn that she would have to pay two deductibles.

$500 for her car deductible and $500 for her renter policy deductible.

If Julie had insured her home and car with an insurance company that only charges one deductible when the home policy and car policy are required to pay in a claim, she would have saved herself $500. Instead, she paid both deductibles which ended up costing her a lot more.

Deductible Waivers & Combined Deductibles Offer Long-Term Savings

There are two ways to save money with insurance, one is before a claim when you are looking at what you pay for policy premiums and the other is after a claim when you see how much money you will really get. Ideally, you find a way to do both.

  • Knowing at what point your deductible is waived and making this part of your decision in purchasing insurance is one hidden way of maximizing how much you will get in an insurance payout which puts you in a better financial position.
  • Insuring yourself with one company so that you eliminate multiple deductibles in a claim that affects both home and car, also saves you money. 

Other Ways to Save Money on Your Insurance

If you are still looking for ways to save money on your home insurance, you may want to check out your home insurance coverage options and see if you have the right policy for your needs. 

Insurance companies are very competitive when it comes to getting or retaining business, sometimes it might pay to shop around for your insurance or negotiate with your home or car insurance to get the lowest overall price. 

You may end up paying less and getting more by switching to a new insurance company with a little work and research.