One of the most common insurance issues is what the deductible should be. While only you can decide, here are a couple of thoughts that might help you.
When it comes to deductibles there are a few of questions you should ask yourself.
- How much cash do I usually have on hand?
- How much am I willing to pay out of pocket?
- What deposit amount do I receive from my tenants?
- What kind of discount am I looking for off my insurance premiums?
Each of these is pertinent to the deductible question. The first two are very much related. If you are able to keep cash available for business emergencies, and are willing to spend it, perhaps opt for a little higher deductible.
Now, for the deposit question. I wrote an article for a Magazine once that was entitled. Smoke, Fires, Lawsuits – OH MY! In it, I described a fire that happened just around the corner from my house. The tenant was a friend of mine. Long story short, as the family moved out after this devastating situation the landlord came and asked for the next month’s rent. It seemed like kind of a weird thing to do, in my opinion. She was clearly facing a major loss. But, if she had insurance, her property would have been covered for the loss caused by the fire. Her rents would have been protected by loss of use/rents, but she would have been on the hook for the deductible. Now, consider if her tenant’s deposit amount had been the same has her deductible, she would have had no out of pocket costs. ASSUMING SHE HAD VALUED THE HOUSE PROPERLY. But consider the concept of making the deposit match the deductible. In the event of a total loss, it could save your bacon (clearly, this assumes that if someone burns down your rental property, you’re not giving them the deposit back… I think that’s fair).
Finally the discount question: Deductibles are simple. The higher the deductible means you take more risk, and the lower the premiums. The lower the deductible means the less risk you take, and the higher the premiums. However, there is a reason I tackled this question last. This should be the determining factor. A $5,000 deductible that makes your premiums dirt cheap doesn’t make sense if you don’t have the $5,000 to pay when you have a loss.
While only you can determine what deductible is best for you, hopefully this is some good food for thought.