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Larger Deductibles Can Reduce Insurance Costs

February 21, 1988|CURTIS B. SMITH | Special to The Times and Curtis B. Smith is a multiple-line insurance agent in the West Los Angeles area. and

Many persons are spending more on their homeowner's insurance than they need because they have small deductibles (e.g. $100 or $250) on their policies. By increasing the policy deductible, the homeowner can make substantial savings.

Insurance companies are willing to reduce premiums in exchange for larger deductibles because they have fewer claims to service and policyholders will pay a larger portion of any claims that are submitted.

The most common reason policyholders prefer small deductibles is because they are worried about having to pay a large sum if a claim occurs. This is a legitimate concern, but the average homeowner's policy has a claim filed against it only about once every 10 years.

The following example illustrates how much can be saved by increasing deductibles: A typical annual premium for a $150,000 homeowner's insurance policy in the West Los Angeles area, with a deductible of $100, the most common endorsements and earthquake coverage, is about $1,000.

If the deductible is raised to $1,000, the premium is about $700--an annual saving of $300, or a $9,000 saving over 30 years.

If three claims are filed against the policy in the 30-year period, the policyholder will have to pay an extra $2,700 (3 claims x $900) in deductibles, for a total saving over the period of $6,300 ($9,000 premium saving--$2,700 extra deductibles paid).

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