In renters insurance, the excess (also called a deductible) plays a significant role in determining the cost of your premium. Understanding how it works can help you decide whether opting for a higher excess is a good strategy to save on premiums. Here’s a breakdown of how excess affects your renters insurance:
What Is Excess (Deductible)?
Excess is the amount of money you must pay out-of-pocket when making a claim before your insurance coverage kicks in. For example, if your renters insurance policy has a $500 excess and you make a claim for $2,000 worth of damage, you would need to pay the first $500, and the insurer would cover the remaining $1,500.
How Does Excess Affect Premiums?
The relationship between excess and premiums is straightforward: higher excess usually means lower premiums, while lower excess typically leads to higher premiums.
- Higher Excess = Lower Premiums:
- By choosing a higher excess, you take on more of the financial risk in the event of a claim. This reduces the insurer’s risk and, as a result, they are likely to offer you lower monthly or annual premiums.
- However, the trade-off is that if you need to file a claim, you’ll have to pay more out-of-pocket before the insurance kicks in.
- Lower Excess = Higher Premiums:
- A lower excess means your insurer’s risk is higher because they’ll pay out more in case of a claim. To offset this risk, they charge higher premiums.
- This can be beneficial if you prefer to have a smaller out-of-pocket cost when filing a claim, but it comes at the expense of a higher monthly premium.
Can You Save on Premiums with a Higher Excess?
Yes, opting for a higher excess is one of the most effective ways to save on your renters insurance premiums. Here are a few factors to consider when deciding on the excess amount:
- Your Financial Situation: If you have sufficient savings to cover the higher excess in the event of a claim, this strategy can lead to considerable savings on your premiums.
- Risk Tolerance: If you don’t expect to file claims frequently and are willing to absorb a larger financial hit if needed, a higher excess may be a good fit.
- Claim History: If you’ve never had to make a claim or rarely make one, a higher excess could be a wise choice as the likelihood of having to pay out-of-pocket is lower.
Things to Keep in Mind
- Balance between Excess and Premium: While a higher excess can lower your premiums, you should find a balance that makes sense for your financial circumstances. Choose an excess that you can comfortably afford if you need to make a claim.
- Policy Terms: Ensure you understand the terms of the policy, including what’s covered, exclusions, and how excess applies to different types of claims (e.g., theft, fire, water damage).
Conclusion
In summary, a higher excess can help you save on premiums in renters insurance by shifting more of the risk to you. However, it’s essential to assess your own financial situation and risk tolerance before choosing an excess amount that works best for you.
