The American population is mostly made up of home renters, but only more than a third of them carry tenant’s insurance. That is quite ironic given that renters are more exposed to a higher risk of paying for damage and loss compared to homeowners. It means that two-thirds of the renter population could get stuck paying hefty amounts of money straight out of their pocket because they don’t have insurance to protect them.
Renter’s insurance can cost an average of only $185 annually, which is equivalent to half a dozen grandé cups of Starbucks coffee. The peace of mind that insurance can give is worth it, given that it will only cost around $15 per month.
Of course, even though it seems cheap, some renters will still try to find a way to decrease the price of the premium as much as possible while still getting the maximum coverage that renter’s insurance can offer. One way they can get a lower premium is by setting a higher deductible.
What is a deductible?
A deductible is the amount of money a tenant must pay straight out of their pocket when they make an insurance claim. The tenant is responsible for paying the deductible before the insurance company steps in to pay for the remaining cost of the claim.
For example, a tenant has a deductible set at $1,000. Due to the tenant’s negligence, he has caused water damage that would cost $3,000 to repair. In this example, the tenant would have to pay $1,000 then the insurance will pay for the $2,000 remainder.
The deductible usually doesn’t apply to the liability part of the tenant’s insurance, only to loss and damage.
The Reason for Deductibles
An insurance deductible’s purpose is to share the risk between the insurance company and the insured individual. It ensures that the tenant will also be a responsible policyholder, not a negligent one.
Deductibles decrease frequent small claims because if the claim is less than the deductible amount, the insurance company won’t pay for it. Having a deductible also prevents the tenant from committing insurance fraud because they would have to spend to get a claim.
Setting the Rate of the Deductible
On average, a tenant’s insurance deductible is set around $500-$2,000, but companies allow it to be set as low as $0-$100 but the monthly premium will be higher. It also depends on how the company calculates deductibles.
Most insurance will work with you in setting the deductible amount. Some of them will set a percentage amount of the coverage of your policy. For example, if a tenant’s coverage is $4,000, with a deductible rate set to 10%, then his deductible would be $400. If the tenant raises his coverage to $5,000, then he would have a $500 deductible. Most of the time, a company would set a minimum deductible but offers tenants the option to raise it.
Why Renters Set a High Deductible Rate
The main reason why tenants choose to increase their deductible is to get a lower premium, which is the amount of money the tenant pay to stay insured. However, a high deductible and low premium is not always an advantage to the tenant because other factors such as how much they will save on premiums and how long can they plan to be insured also come into play.
For example, when a tenant increases his deductible from $500 to $1,000 to get a discount of $10 on his annual premium, it means that it will be 50 years of paying insurance premiums to make up the 500-dollar difference he will pay when he makes a claim. The 10-dollar annual discount will not be worth it.
However, if the $500 increase in deductible can give a discount of $10 on his MONTHLY premium, then it only takes 50 months or a little over 4 years to make up for it. If the tenant will stay in the property for more than that duration, then it may be worth it.
Another thing to be aware of is that premium rates increase each time a tenant makes a claim. It is possible that after a couple of claims, the premium could go higher than a policy with a low deductible.
Requiring Renter’s Insurance
As a rental agent who markets properties for landlords who require tenant’s insurance, you can go the extra mile for your potential clients by giving them an idea of how they can navigate getting insurance that will be beneficial for them. After publishing a listing on Padleads, establish a good rapport with strong leads with these insurance tips.