Percentage deductible? What is that?

What is a “percentage deductible?”

A percentage deductible is a calculated deductible based off of the total insured value on your property policy.  For example: you have your hotel or apartment insured for $3,000,000; the contents insured for $250,000; and, your annual receipts/business income insured for $250,000. Your total insured value would be $3,500,000.  With a 1% wind/hail deductible, your deductible would be $35,000.  

I know this topic may seem elementary, but I’ve spoken with several clients and learned they had been misinformed on how a percentage deductible works. 

As your agent, I will always strive to get a flat deductible. Questions? Let’s talk. 

Sean

Mother Nature and Deductibles

If you live in the Midwest region of the country, or “Tornado Alley”, it is almost inevitable you have experienced some form of wind and hail that may or may not have resulted in an insurance claim. Whether it was your personal home, auto, or maybe a rental dwelling, you have seen the damage that Mother Nature can cause during the storm season.

As a landlord, these storms can impact to your bottom line and it is important to understand how your properties are covered against these perils. There are few different approaches to structuring your insurance deductible, and choosing the correct deducible for your portfolio could mean the difference in thousands of dollars to your bottom line. When explaining deductibles, the Insurance Information Institute says,

“A deductible can be either a specific dollar amount or a percentage      

of the total amount of insurance on a policy. Generally speaking,

the larger the deductible, the less a consumer pays in premiums for

an insurance policy.”

There is not a universally correct deductible option for everyone and it is not a certainty that you will have the liberty to choose which form will apply to your policy, but there are a few factors to understand how your deductible will affect your policy.

Percentage vs. Flat Deductibles

If you have a flat $1,000 deductible, that money would be deducted from your claim. So, if your insurance company has determined that you have an insured loss worth $10,000 you would receive a claims check for $9,000.

Percentage deductibles are based on a percentage of the property’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 % deductible, $2,000 would be deducted from the amount you are reimbursed on a claim. In the event of the $10,000 insurance loss, you would be paid $8,000.

Per Location vs. Per Occurrence Deductibles

Realizing how your deductible will apply to your property schedule is crucial. Say you have 10 rental dwellings and a single hail storm damages all 10 roofs. If you have a $1,000 per location deductible, that would equate to $10,000 in total deductibles you would pay if you were to file a claim to replace all your roofs.

Using the same situation where all 10 properties are damaged by one storm, if instead you have a $5,000 per occurrence deductible, you would only pay one $5,000 deductible if you were to file a claim to replace all your roofs.

Not all carriers will offer a per occurrence deductible, and depending on the number of locations you have and the total insurable value of your portfolio, it may not be the right fit for you. It is important that you consult your agent to explore all the possibilities that are available to you and figure out which deductible structure suits you the best.

If you have questions or would like to learn more about our unique programs for rental dwellings you can reach me at 405-507-2734 or nbritten@pi-ins.com

My Property Insurance Deductible

Risk Management for Oklahoma business insurance clients provided by Professional Insurors Business Insurance OKC.

What does your deductible mean to you?

We are all familiar with our insurance policies having deductibles whether it’s for health insurance, auto and home insurance or commercial insurance.  In the past our standard deductibles (what we are most familiar to selecting) would range anywhere from $0-$2,500 for auto and home insurance, $250-$1,000 for health insurance and $1,000-$5,000 for commercial insurance.  Have you looked at your deductible in the last year?  Did you notice any changes to the deductible?

Right now in Oklahoma our deductibles vary greatly due to the catastrophic wind and hail losses we have sustained.  The loss amounts are in the billions of dollars for our state alone.  You might still see the above mentioned deductibles in your policy listed under “All Other Perils except Wind and Hail” and then you will see another deductible listed that states 1%-5% W/H (Wind and Hail) deductible.  What does that mean exactly?  That means that for a loss that is classified as a Wind and Hail loss, your deductible amount will be 1%-5% of the dwelling or building value listed on your declarations page.  For example, if the dwelling (house) is insured for $150,000 with a Wind/Hail deductible of 2% and you suffer a hail loss to your roof, your out of pocket portion for the claim would be $3,000.00.  Imagine what that figure would look like if your business was insured for $1.5 million and you had a deductible of 3% on wind and hail.  That’s a $45,000.00 deductible that you would be responsible for!  If you are a business owner that owns multiple locations, that deductible could apply to each location as well.  That is an amount that none of us would be happy about in the event of a loss.

As we get closer to 2013, we are seeing insurance rates and deductibles rise because of the catastrophic weather we have suffered across the nation and especially in Oklahoma.  Now is the time to really inform yourself on your coverage’s and deductibles and what they mean to your bottom line.  Taking a proactive role in risk management for your business and/or home insurance is imperative now more than ever.  There are many ways you can help reduce your hazards, and control your own premiums and coverage’s.  Talk to your agent and reach out to companies such as TCOR, Total Cost of Risk, for advice and direction for your upcoming renewal.  Even though we cannot prevent Mother Nature and across the board rate increases within the insurance companies, does not mean you can’t help control your own risks, coverage’s and deductibles.  Stay proactive and informed about your policy!