“INSURANCE DEDUCTIBLE” EXPLAINED

We all know that every insurance policy out there comes with a policy deductible.  Depending on the policy, your deductible may be in the form of a standard flat fee, such as $1,000 or $2,000 or applied in percentage form – usually anywhere from 1 % to 5%. 

Take this quick challenge.

Say you have a 5% deductible on your $500,000 building coverage and suffer $100,000 in hurricane damages. In what manner would you define your 5% deductible in terms of how your insurance company reimburses you?

  a)      You are awarded $95,000 ($100,000 - $5,000 or 5% of your   total claim)

            or

  b)      You are awarded $75,000  ($500,000 - $25,000 or 5% of your property’s entire value)

IF YOU ANSWERED ‘A’, YOU ARE WRONG!

5% refers to property’s Total Value, known as TIV. Option b, then, is the correct answer. The above is a good example of why it’s important for a customer to know policy terms. Had you been the customer here, you would have been out $25,000 in out- of- pocket expenses – a  shocker in light of the fact that you assumed your deductible would only have been $5,000.  

Anyone living within a cyclone-prone area, such as Texas, would most likely have scored better on the above quiz. Why? With insurance ramifications commonplace due to rampant storm damage, insurance companies consistently apply high deductibles so that the damage risk is shared with property owners. Hence, residents of Austin, Dallas, Houston, San Antonio and Irving, Texas, etc., are probably more familiar with deductible definitions.

So if a deductible does in fact signify the percentage of your property’s Total value -or TIV – the repercussions could be serious.

Now let’s take a look at a 5% deductible in a larger loss.

Sample deductible for wind damage to a building

-          Building worth five million dollars

-          Deductible of 5%

-         $250,000 is NOT covered

Sample deductible for wind damage to apartment complex of 2-3 buildings

-          Each building has four rows of 10 dwelling places, each worth $500,000, totaling 2 million dollars.

-          One row is destroyed, deductible is 5%

-         $100,000 is NOT covered

The obvious lesson of these examples is: KNOW YOUR COVERAGE and ALWAYS CHOOSE A PROFESSIONAL BROKERAGE FIRM that has your best interest in mind.

KNOW YOUR COVERAGE!

Knowing what your policy is all about is the #1 step to responsible insurance shopping.  Finding an agent that will take the time to explain insurance terminology and concepts is imperative. Moreover, some, known as direct agents, are beholden to only one insurance company and therefore can only offer the one option.  By partnering with an experienced independent insurance company, like PRIME Insurance Agency, you will be dealing with a company that has a network of insurance carriers and the ability to search the spectrum of policies and low quotes for you. Hearing your needs, while patiently explaining the insurance process, they make you an informed consumer while getting you the best liability and property insurance deal.

PRIME Insurance is a three-generation family-run independent agency. We’re proud partners with many of the leading companies in the industry – big names such as ACE, AmTRUST, ASI, ASSURANT, CHUBB, CNA, Employers, FOREMOST, Liberty Mutual, MetLife, PROGRESSIVE, Safeco, StillWater, Travelers, USLI, ZURICH and more. This gives us the ability to provide all forms of nationwide coverage and bonds at competitively lowest quotes. Visit us on our online insurance website or email us at PRIME [at] primeins [dot] com or call us at 732-886-5751 and HAVE A PRIME DAY™!

Summary:
Most people outside of weather-disaster areas are unfamiliar with the ramifications of wind and hail deductibles. They may not realize that when their policy mentions an X% as the out of pocket deductible, it refers to X% of their property’s TOTAL VALUE. This misunderstanding could lead to devastating losses in the event of severe storm building damage. Knowing the ins and outs of your coverage is the important prerequisite to purchasing it. Finding an independent agency that places customer education as priority will ensure you understand your policy. Furthermore, by partnering with a company that uses a broad network of insurance carriers to scout the most appropriate policy at the lowest quote, you will be securing the best deal possible.