Understanding Waivers of Deductible in Home Insurance

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Does Your Policy Have a Waiver of Deductible Clause?

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Putting more money in your wallet before and after a claim. JGI/Jamie Grill / Getty Images

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.

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 would come into play when there is a major loss, such as a home insurance claim where the home has to be rebuilt or a fire.

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. 

If you have an insurance policy that has a waiver of deductible clause in the wording, 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 auto insurance. 

Some auto insurance companies will offer you the opportunity to buy a waiver of deducible, we talk more about this in number 2 below. 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 about the specific waiver amount on your policy to be sure.

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, it is an insurance company decision which is why you want to ask about it to be clear.

The insurance company can decide what level of claim they will waive the deductible based on their standard client and target markets.

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 would be found in the wording of the policy as part of the package. You may have the opportunity to buy additional waivers, but you should always start with asking whats included for free. If you are shopping for insurance, choosing a policy with the lowest threshold before the waiver kicks in is a good advantage.

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 the 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 was available

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 exceeded $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 fairly low waiver of deductible limit. Overall, the combination of these two things saved John a lot of money on his insurance.

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Disappearing Deductibles, Vanishing Deductibles and Loyalty Deductibles

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Thinking long term about your insurance choices will save you money. JGI/Jamie Grill / Blend Images /Getty Images

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 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 options, although in today's competitive marketplace it is likely that you will find some variation of the concept if you shop your insurance around to get the best deal or speak to a broker who is familiar with many insurance company benefits. 

What Is a Loyalty Based Disappearing Deductible?

Insurance companies are always looking for ways to increase customer loyalty or take 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. If that is the case, then you may want to 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, reducing the amount you pay for your deductible by a certain percentage for each year you are claims free. 

How a Disappearing Deductible Loyalty Program Can Save You Money

If your insurance company has this kind of program or clause in your policy, you may be able to take advantage of the savings of increasing your deductible. These disappearing deductibles are often limited which means they will not pay more than a maximum amount of the deductible.

If, for example, your insurance company offers you the possibility of having a $500 disappearing deductible, then 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 (the maximum ceiling) of it 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 policy price which could be 20 percent less.

Be sure and ask your insurance representative or agent the specifics of your policy wording because these types of promotional perks really vary by insurance company and may be subject to many rules or situations. You will have to do the math to figure out if you are really saving money.

Small claims cost you more than you get in the long term due to losses of claims free discounts or claims frequency surcharges, so are small deductibles really helpful?

Keep in mind that making small claims can increase your policy cost for several years following a claim, so in the end, is that $200 loyalty deductible really something that should be a major deciding factor on your insurance. 

Advertisements will promote these loyalty or disappearing deductibles, and there is no doubt it is nice not to pay a deductible in a claim; in a major loss, the disappearing deductible may be washed out by the waiver, and this is something to think about.

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Maximizing Your Savings Before a Claim Happens: Combined Deductibles

more money in your wallet by making smart insurance choices
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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 Waiver & Combined Deductibles Offer Long-Term Cost 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 claims that affect 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 until one combination of the policies you need gives you 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.