Have you taken a look at your homeowners insurance deductible lately?
State Farm, one of the most popular insurance companies in the Washington region, recently raised the deductible for some customers — quadrupling the minimum homeowners must kick in if they want to do business with the company.
That amount jumped from $500 to $2,000 on Oct. 1 for all existing single-family homeowners who have a flat deductible. The increase took effect for new customers Aug. 15, a company spokesman said. Those with both home and auto insurance policies with State Farm are now subject to $1,000 deductible, in part because company data show that they file fewer claims, making them less risky.
The deductibles for condominium owners and renters also rose dramatically, the exact amount depending on whether they have other policies with State Farm.
Dick Luedke, a State Farm spokesman, said the decision is based on the risk posed by hazardous weather conditions and the rising cost of replacing a home. The company — which has more than 20 percent of the home insurance market in Maryland, Virginia and the District — has paid out $5 billion in claims so far this year, up from $4 billion last year.
“Our priority is to make sure we don’t make promises that we can’t keep,” Luedke said. “What we’re looking to do is protect more homeowners against the more-devastating losses, and we can only do that to the extent that homeowners are willing to cover the lower portion of the risk spectrum, in this case the first $2,000.”
USAA, another big insurer in the Washington area, said that its minimum deductible is $500 for homeowners insurance in Virginia, Maryland and the District and that the amount has not gone up, said Roger Wildermuth, a USAA spokesman.
The deductible is the amount a homeowner would pay out of pocket before the insurance company would begin paying for damages, for example.
Consumer advocates and industry officials say the deductible increase is not necessarily bad news for homeowners, as long as insurance companies that raise a customer’s deductible are also lowering the premium.
“They should be happy their deductible is higher as long as the premium goes down accordingly,” said Robert Hunter, director of insurance at the Consumer Federation of America and a former Texas insurance commissioner.
State Farm said that its customers’ premiums in Maryland, Virginia and the District fell by about 20 percent once the higher deductibles took effect.
Homeowners insurance is the basic policy most people who own a home have, in part because banks require it as part of a mortgage. While the banks want to make the sure homeowners are covered for any property damage from fires or other perils, home insurance also covers personal belongings, liability in case someone is injured on the property and the cost of any additional living expenses if a residence is damaged by an covered disaster and is uninhabitable, said Jeanne Salvatore, a senior vice president at the Insurance Information Institute.
Generally, damage from earthquakes and floods is not covered under a basic policy, but wind damage is, which is why weather patterns are of huge concern to insurers.
Salvatore said that larger deductibles are an industry-wide trend for customers with a flat-dollar deductible. Some homeowners take out policies that are based on a percentage of the home’s insured value.
But the upside is that most people don’t file a claim that often, maybe once every eight to 10 years, Salvatore said. “So taking a higher deductible is a way you can save money over time and still be financially protected against a big loss that you couldn’t pay for on your own, like the house burning down.”
The Maryland Insurance Administration said it has received three formal complaints from residents about the higher deductibles and 10 phone calls. Virginia and D.C. officials said they have not heard from consumers about the issue.
But that doesn’t mean that people should accept a high deductible.
“Make sure you shop around,” Hunter said. “Don’t go to one agent and say: ‘Take me. I’m yours,’ ” Hunter said. “There’s a significant difference in prices. You can pay twice as much for exactly the same coverage.”