Buyback deductibles reduce your deductible on major claims.
Frequently used in property damage insurance, a buyback deductible is a provision that lets you pay a lower deductible when you have a claim that exceeds your original deductible. Sometimes offered by the same company that sells you your insurance, buyback deductibles might not make sense at first. However, they're a brilliant solution to a common problem.
What Insurance Companies Hate
Insurance companies hate claims. Claims don't just cost money in terms of awards, either. When you have a claim, you contact your insurer to let them know, and the company sends out an adjuster to process the claim. While it's doing its research, the company is spending hundreds or thousands of dollars on it so that it can eventually send you a check.
The High Deductible Problem
Opting for a high deductible can be problematic for individual homeowners though. You might be able to afford
the cost of a minor repair -- like if you break your own window or even if a neighbor's kid throws a ball through it. In fact, more and more consumers are already choosing higher deductibles and paying these types of expenses out of pocket. (ref 7) However, if you lose your house and the clothing you need to wear so that you can go to work, having to come up with a $5,000 deductible to get any help from your insurer can seem unfair or even be impossible for you.
A buyback deductible gives both you and your insurance company what you want. With a buyback deductible, your policy's main deductible stays high, meaning that you can't make a claim for a minor loss. However, when you purchase a buyback policy and have a major loss, your deductible drops down. For instance, you could purchase a policy that would cover $9,800 of your $10,000 deductible.
Types of Buyback Deductibles