Henrich Insurance Group

white houseA big sigh of relief is being breathed in many communities as home values are once again on the rise. And while not every community is experiencing this revival, individuals living in those that are may be wondering how this increase will affect their Houston home insurance policy.

The limit on a home insurance policy is not based on home value but on potential rebuilding costs, so the increase in value won’t affect the policy in that way. But an increase in value could create an increase in equity that may prompt homeowners to take bigger risks by increasing their home insurance deductible. After all, if they have an insurable incident, they can always get an equity loan to pay the deductible, right? Unfortunately, not only is this not the case, but executing this plan also creates an additional, unnecessary risk for your family.

The Problem with Equity Loans and High Deductibles

Lenders are gun shy about equity loans right now. Often, they will not base the potential amount of an equity loan on the full appraised value of your home, but a percentage of that number—which means from a lender’s point of view, you might have a lot less equity than you think. Equity loans also come with stiff interest charges and closing costs. So not only would you be expected to pay your deductible, but you’d also be paying interest and fees on that amount—for years.

Even a Small Deductible Increase could Spell D-E-B -T

But let’s say you don’t have a high deductible home insurance policy, you just raise your deductible a little bit—to $1,500. After an insurable incident, you may not just have a home insurance deductible to pay but also an auto insurance deductible. You may also miss work and have less income and you may have to pay for temporary lodging—so even if you originally had the savings to pay your $1,500 deductible, by the time the incident occurs you could find that money already allocated elsewhere. This may lead you to rely on credit cards to pay the deductible, which will create even more expenses through interest charges.

As your home value rises, keeping your deductible low is a great way to really benefit from that increase in value and help keep the rest of your debt low. If you have questions about what the ideal deductible is for your budget, give us a call at 877-349-0200.



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